The portfolio reduced exposure to top AI beneficiaries and redeployed capital into defensive names after oil prices and Treasury yields moved higher, forcing a reassessment of risk.
Stocks opened September on shaky footing as higher oil and a stronger-than-expected August jobs report lifted bond yields, with the 2-year Treasury reaching its highest level since January 2025. The S&P 500 eked out a 0.1% gain for the week, while the Nasdaq rose 0.4%, marking each index's fifth weekly gain in the past six. The market increased the odds of a September Federal Reserve rate hike to 58%, up from 49.4% a day earlier, according to the CME FedWatch tool.
Portfolio managers trimmed positions in some AI buildout winners and rebalanced toward lower-volatility stocks. On Monday they sold Palo Alto Networks, locking in a roughly 148% gain on shares bought in August 2024. The move followed the stock’s more than 80% rally this year and was intended to preserve gains rather than change the view that AI is driving higher cybersecurity spending. The team also exited Corning on Tuesday, realizing an average 52% gain; Corning remains up 70% year to date despite falling over 40% from record highs in late June.
Proceeds funded new positions sized at about 1% each in BNY and Kimberly-Clark. BNY adds less cyclical, fee-driven financial exposure, while Kimberly-Clark offers a cheaper valuation and a 4.75% dividend yield, with a possible catalyst from its pending Kenvue acquisition. Managers also increased Micron to roughly a 1% holding, citing ongoing AI-driven memory demand that continues to outstrip supply and bullish long-term outlooks from Nvidia.
Not all AI-related names fared the same. Broadcom reported better-than-expected revenue and earnings and lifted a fiscal 2027 AI revenue forecast to $115 billion, with management saying it could reach $230 billion in fiscal 2028. Still, concerns over customer concentration, vendor financing and data center pushback weighed on the stock. The portfolio cut its price target to $430 from $480 while keeping a hold-equivalent 2 rating. Shares finished the week down 3% after managers had earlier sold half their remaining Broadcom position to reduce exposure.
Palo Alto’s strong quarter reinforced the team’s conviction that AI is a major cybersecurity tailwind. The firm upgraded Palo Alto to a hold-equivalent 2 from a sell-on-strength 3 after the stock’s midweek pullback and raised the price target to $400 from $380. CEO Nikesh Arora said on CNBC’s "Mad Money", "You cannot deploy AI successfully if you do not get cybersecurity right." Even so, Palo Alto was the portfolio’s worst performer last week, falling more than 10% on profit-taking.
Nvidia continued to expand its AI ecosystem with a $12.9 billion acquisition of Hugging Face, a platform used by more than 18 million developers. Managers see the deal as reinforcing Nvidia’s moat, deepening developer loyalty and hedging against hyperscalers’ custom chips. Nvidia has gained roughly 22% this year and trades at about 14 times next year’s expected earnings; the stock climbed 6% last week as it moved closer to mid-May record highs.
The portfolio shift signals a tactical move to protect gains and reduce cyclicality as yields and inflation risks rise. Managers will watch incoming economic data, oil prices and Fed guidance for the next signals that could prompt further rotation between growth and defensive sectors.
