It’s likely that the AI trend has staying power. But many AI stocks have gone nearly vertical in recent weeks. That suggests the space is ripe for a pullback that could bring down valuations quickly, and set up a further run later in the year.
Such a move already occurred after a short rally in AI stocks to start the year. Now, investors have more companies working on AI initiatives to invest in, which creates a better watch list of opportunities.
One company that looks ready for a pullback with an eye towards buying for the long term is Oracle (ORCL). The company has shifted towards a more cloud-focused service in recent years, and is building a recurring revenue stream.
That’s allowed shares to soar higher, and the company’s AI plans have helped boost shares as well. But with a price near $125 and the stock near 40 times earnings, it’s also likely to see a short-term pullback.
Action to take: Long-term investors should look for a drop to the $110 range or under, about a 12 percent drop from current prices. From there, any further drops can be used to scale into the position. Oracle pays a growing dividend, but the current yield of 1.2 percent is a bit low. The $110 range is a bit better at 1.45 percent.
For traders, consider a bet against shares in the short term. The August $110 puts, last going for $0.80, could see mid-to-high double-digit returns on a fast drop in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.