Recent fears about the AI trade fizzling had led investors to rotate out of recent winners and into some more defensive sectors—though not all. It’s true that big tech companies are spending an eye-watering amount on AI development, raising concerns and comparisons to the dot-com bubble, when capital expenditures led to deteriorating free cash flow. “In sum, we think that if investors remain holed up in defensive sectors, they risk underperforming the market (and peers) as AI demand continues and passive flows remain relentless,” the firm says.