What Is an AI Stock?

I have a question.

What is an AI stock?

I’m serious. I don’t know the answer.

I was hanging out with a good friend of mine recently. This guy is a legend in the business. He’s been around markets forever, and he’s one of the smartest people I know.

So I asked him point-blank, “What is an AI stock?”

I didn’t tell him what I thought. I didn’t tell him I was struggling with the question myself. I just wanted to hear his answer.

He looked at me and said, “I’m the last person you should be asking that question.”

Couldn’t give me an answer.

Now, this is somebody who’s forgotten more about markets than most people will ever learn. And he couldn’t tell me what an AI stock was.

So I asked somebody else.

This person has much less experience in the stock market. Not a professional trader or somebody who’s been studying stocks for decades.

But this time, I got an answer immediately.

“Memory and semiconductors.”

No hesitation. Very confident. I thought that was fascinating.

The guy with decades of experience has no idea. The guy with much less experience trading knows exactly what an AI stock is.

And I’m sitting there wondering whether either of them is right.

Because if memory and semiconductors are AI stocks, what about everything else?

Don’t all those computers need electricity? What about the energy companies producing the power?

And who’s building all these giant data centers? Don’t we need construction companies, engineers, and industrial equipment to build them?

What about the companies providing the cooling systems? The water? The utilities keeping everything running?

Are those AI stocks too?

I’m genuinely asking.

Because the more I think about it, the less I understand what people mean when they say “AI stock.”

And I’m starting to wonder whether it’s even a useful way to think about the market.

Is Everything an AI Stock?

Let’s talk about software.

Earlier this year, we kept hearing that artificial intelligence was going to destroy software companies. Remember the SaaScalypse?

Software was dead. AI was going to replace everything.

Meanwhile, an equally weighted basket of more than 100 software stocks just made new all-time highs.

Not just a couple of giant companies carrying the group. More than 100 software stocks, all getting the same weight, collectively reaching the highest levels in history.

So are software companies AI stocks?

I’m told they’re not. But it sure seems like plenty of them are benefiting from AI.

I know I am.

I’m a nobody sitting here using artificial intelligence every single day to help me run my portfolio, organize information, write software, and do things I couldn’t have dreamed of doing a few years ago.

Are you kidding me? The productivity gains are incredible.

And I’m supposed to believe that the companies selling software aren’t going to figure out how to benefit from this technology, too?

Maybe some will and some won’t. That’s usually how these things work.

But what about biotechnology?

Scientists are using artificial intelligence to help study diseases, analyze enormous amounts of information, and develop new treatments.

Think about how powerful that could be.

AI is impressive on its own. But give it incredible amounts of useful information, and suddenly it has a whole lot more to work with.

And we’re collecting more information every day.

Even the FDA, the government agency responsible for reviewing new drugs, has been talking about using AI to make its own work faster and more efficient.

If AI can help companies develop medicines and help regulators review them more efficiently, wouldn’t biotechnology be one of the industries that benefits?

So are biotech stocks AI stocks now?

Or are they just biotechnology companies using new technology to do their jobs better?

And that’s where I keep getting stuck.

Because isn’t everybody using AI?

Banks are using it. Hospitals are using it. Manufacturers are using it. Retailers are using it. Even the government is using it.

Some companies are building the technology. Others are supplying the equipment and electricity.

And plenty of others are simply using it to become more productive.

Where exactly do we draw the line?

If everybody benefits from AI, is everything an AI stock? Or does that mean nothing is really an AI stock?

I’m not sure the label tells us much of anything.

Are We Asking the Wrong Question?

People keep telling me the AI trade is over.

OK, what’s the AI trade? Is it semiconductors? Software? Energy?

If chip stocks are falling but utilities are rising, is the trade over or is the money just moving somewhere else?

I don’t know how you can declare something over when nobody can agree on what that something is.

And I don’t need to know whether a stock belongs in the AI basket to recognize that it’s going up.

This is one of the reasons I love technical analysis. It doesn’t give us all the answers. It most definitely does not.

But it goes a long way toward helping us ask the right questions.

Instead of asking whether something is an AI stock, why not ask whether it’s in an uptrend? Is it making new highs?

Are more stocks in that industry participating? Is it outperforming the rest of the market?

Those are questions we can actually answer. And the answers can help us make decisions with our money.

So I’ll ask you the same question I asked my friends: What is an AI stock?

Perhaps more importantly, why should I care?

Because I’m increasingly convinced that the second question matters a whole lot more than the first.