Non-AI Stocks: BofA Urges Investors to Explore 16 Undervalued Picks

The non-AI stocks sector is gaining attention as Bank of America Global Research analysts caution that an overemphasis on artificial intelligence-related investments, particularly semiconductor giants like Nvidia, may be blinding investors to promising opportunities elsewhere in the market. With AI hype driving record multiples for tech leaders, BofA highlights undervalued non-AI stocks that offer compelling narratives and growth potential without the volatility tied to the AI boom.

Why Investors Are Overlooking Non-AI Stocks Amid AI Frenzy

In recent years, the artificial intelligence revolution has dominated headlines and portfolios, propelling companies like Nvidia to unprecedented valuations. However, this singular focus risks creating blind spots. BofA’s Savita Subramanian notes that AI spenders now exhibit capex/operating cash flow ratios comparable to U.S. oil majors, yet they command near-record multiples. If AI monetization falters, hyperscalers could face significant de-rating, underscoring the need to diversify into non-AI stocks.

The analysts’ report emphasizes that while AI infrastructure spending surges, broader market segments remain attractive. Non-AI stocks in communications, consumer discretionary, financial services, entertainment, and machinery sectors are trading at discounts to the S&P 500’s 26x multiple. These picks also boast positive three-month earnings revisions and are down at least 10% from their 52-week highs, presenting value opportunities for discerning investors.

Risks of Overconcentration in AI-Driven Markets

History shows that capital-intensive innovators often trade at premiums, but sustained demand is key. Subramanian warns that AI-driven efficiencies could erode middle-income white-collar jobs, potentially curbing consumer spending—a critical driver for non-tech sectors. This dynamic highlights why balancing portfolios with non-AI stocks is essential for risk management in 2025’s uncertain economic landscape.

BofA’s Top 16 Non-AI Stocks Recommendations

BofA has curated a shortlist of 16 buy-rated non-AI stocks, each with strong fundamentals uncorrelated to AI trends. These selections span diverse industries, offering exposure to stable growth areas. Leading the list is Walt Disney (DIS), whose entertainment empire continues to thrive through streaming and theme parks, trading well below its historical averages.

Other notable picks include Amcor (AMCR) in consumer packaging, AT&T (T) for telecommunications stability, and BGC Group (BGC) in financial services. Consumer staples like Church & Dwight (CHD) and Dollar General (DG) provide defensive plays, while energy and materials firms such as Eversource Energy (ES), Freeport-McMoRan (FCX), and Oneok (OKE) benefit from commodity cycles. Healthcare and industrials round out the list with Henry Schein (HSIC), J.B. Hunt (JBHT), KeyCorp (KEY), McCormick & Co (MKC), Progressive Corp (PGR), Regency Centers (REG), and Viking Holdings (VIK).

Key Metrics Driving BofA’s Non-AI Stocks Selections

Each of these non-AI stocks meets rigorous criteria: valuations under 26x forward earnings, upward earnings revisions, and recent price dips signaling entry points. For instance, Disney’s forward P/E of around 18x contrasts sharply with AI peers exceeding 50x. This undervaluation, combined with resilient cash flows, positions these stocks for potential rerating as market sentiment broadens beyond tech.

Investors should note the macroeconomic backdrop: with the Dow advancing over 1% recently while the Nasdaq dipped 0.3%, healthcare led S&P 500 gainers, and tech lagged. This rotation underscores the timeliness of BofA’s advice on non-AI stocks.

Broader Market Context: Sector Performance and Economic Indicators

Current market dynamics reinforce the appeal of non-AI stocks. The S&P 500’s modest 0.2% gain masks underlying shifts, with healthcare outperforming amid AI fatigue. Meanwhile, the dollar’s decline, gold’s slip, Bitcoin’s over 2% drop, and crude’s 1% rally signal mixed signals. Commodities and traditional sectors like those in BofA’s list could benefit from these trends.

Subramanian’s analysis points to historical parallels: during past tech booms, non-tech sectors often delivered superior risk-adjusted returns. As AI capital expenditures mirror oil majors’ intensity, any monetization disappointment could trigger a flight to quality in non-AI stocks. This perspective aligns with ongoing discussions in financial circles about portfolio diversification.

Impact of AI on Consumer Spending and Job Markets

AI’s efficiency gains pose double-edged risks. While boosting productivity, they may displace jobs in white-collar sectors, pressuring discretionary spending. This could favor defensive non-AI stocks like Dollar General, which caters to value-conscious consumers. BofA estimates that waning middle-class demand might impair broader economic growth, making resilient picks even more vital.

Investment Strategies for Capitalizing on Non-AI Stocks

For investors eyeing BofA’s recommendations, a phased approach is advisable. Start with core holdings like AT&T and Progressive for stability, then add cyclical plays like Freeport-McMoRan as commodity prices firm. Monitor earnings revisions quarterly, as positive surprises could catalyze gains in these undervalued non-AI stocks.

Diversification remains key: allocate 20-30% of equity exposure to this basket to hedge AI volatility. Tools like ETF overlays in non-tech sectors can complement individual picks. As 2025 unfolds, with potential Fed rate cuts and election outcomes, non-AI stocks may emerge as the market’s unsung heroes.

Long-Term Outlook for Non-AI Market Opportunities

Looking ahead, BofA projects that non-AI sectors could outperform if AI growth moderates. With global trade tensions and inflation concerns, staples and utilities offer ballast. Investors ignoring these non-AI stocks risk missing a rebalancing rally, where value trumps growth hype.

In summary, BofA’s insights serve as a timely reminder: while AI captivates, true portfolio strength lies in breadth. The 16 recommended non-AI stocks embody this philosophy, promising returns without the AI rollercoaster.

For more on market trends, check out our analysis on stock market bullish signals amid recent pullbacks.

Source: Reuters