Is it time to switch? NVIDIA VS Dow Jones!

So far this year, artificial intelligence has undoubtedly become the biggest driving force behind the rebound of US stocks, but the latest round of financial reports has also sounded the alarm for investors - the high-risk and high-return situation of AI concept stocks is becoming more apparent. The role of artificial intelligence trading in the entire market has shown signs of decline, and the timing of a market style switch may be imminent.

The performance of AI concept stocks in this round of financial reporting season can be described as mixed. On the one hand, companies like C3.ai rose by 19% after reporting losses less than expected (Note: there was an error in the original text here, which has been corrected), while UiPath's CEO unexpectedly stepping down led to a sharp 34% drop in the stock price.

On the other hand, companies like HP have been favored by investors for their AI initiatives, leading to a doubling of their stock prices. Overall, data shows that since the release of ChatGPT, 86% of "AI-related" company financial reports have exceeded expectations, compared to only 78% in other industries. Furthermore, the average stock price increase of these companies when performance exceeds expectations is 0.3%, higher than the average 0.3% decline of traditional companies.

However, if the performance disappoints investors, AI concept stocks see an average decline of 5.3%, far exceeding the average 2.5% decline of traditional companies. This high-return, high-risk situation means that investors need to be more cautious if they want to continue to invest in AI concept stocks.

Within the entire AI theme, NVIDIA is undoubtedly a key player. Prior to the May 22 financial report announcement, the correlation between its stock and the S&P 500 index was as high as 0.95, with their price movements almost in sync.

However, there was a divergence in NVIDIA's stock price after the financial report was released. Evercore ISI strategist Julian Emanuel pointed out that although the stock rose by 20% in the 3 trading days after the earnings release, the S&P 500 index remained relatively flat during this period, showing a significant decrease in correlation.

This change surprised market analysts, as there has never been such a significant increase in the top five market cap stocks in the S&P 500 while the index itself has not followed suit in the past 30 years. Some institutions believe that the divergence between NVIDIA's stock price and the overall market may indicate the end of the era where "one stock represents one market."

In fact, this week, the CBOE Volatility Index VIX has risen from 11.93 to 14.51, indicating an increase in market noise. Against the backdrop of the fading AI concept trading frenzy, investors may consider shifting their focus to Dow component stocks that were previously overlooked by the market.

So far this year, traditional companies account for a large proportion of the Dow's increase, which is only 1.2%, far behind the S&P 500 and Nasdaq. However, since hitting a new high of 40,000 points on May 17, the Dow has fallen by nearly 5%, currently experiencing its largest oversold level since September 2022