Five ways to hedge the AI volatility
Key points
- AI remains a long-term growth theme, but the trade has become crowded. Heavy exposure to Nasdaq, semiconductors and mega-cap tech can make portfolios more vulnerable to sharp drawdowns.
- Investors can rebalance or add defensives to hedge AI volatility. Simple steps like rebalancing winners, adding defensive growth, reducing mega-cap concentration and dollar cost averaging can help smooth returns.
- Healthcare looks like the cleanest re-rating opportunity. It trades below the broader market, has different earnings drivers from technology, and could benefit if the expected 2027 earnings recovery becomes more credible.
AI is still one of the most important long-term investment themes in markets. But for investors, the question is no longer just whether AI will change the world. It is whether too much of their portfolio is now exposed to the same AI trade.
Nasdaq. Semiconductors. Mega-cap tech. Memory. AI infrastructure.
These areas have delivered strong returns, but they have also become more crowded. That is why volatility has risen. Some days, Nasdaq and semiconductor stocks rally sharply. Other days, one capex headline, margin concern or earnings disappointment can drag the whole trade lower.
The answer is not to abandon AI. The better approach is to keep AI exposure, but reduce the risk that one crowded theme drives the entire portfolio.
Put simply: investors need shock absorbers.
Five simple ways to hedge AI volatility
1. Rebalance AI winners
If AI, semiconductor or mega-cap tech exposure has grown too large after the rally, investors can trim it back to their intended portfolio weight. This is not a bearish call on AI. It is basic risk control. Rebalancing helps prevent one theme from hijacking the whole portfolio.
2. Move into defensive growth
Healthcare and utilities can help portfolios behave better when AI volatility spikes. These sectors have different earnings drivers from technology and may offer more resilience if the market starts questioning AI valuations or capex expectations.
3. Add cheaper non-AI earnings exposure
Financials and selected materials offer exposure to parts of the market where valuations are lower and expectations are less stretched. These sectors do not replace AI, but they can help broaden the earnings base of a portfolio.
4. Reduce mega-cap concentration
Cap-weighted indices have become increasingly dependent on a small group of large companies. Equal-weight equity exposure can keep investors invested in the market, while reducing reliance on the biggest AI-linked names.
5. Use DCA and AutoInvest to stay disciplined
When volatility is high, timing the perfect entry point becomes almost impossible. Dollar-cost averaging (DCA), or investing a fixed amount regularly, can help investors avoid putting all their money to work at market highs. AutoInvest can make this even easier by automating regular ETF investments, helping investors build exposure steadily across market cycles.
The benefit is simple: investors can keep participating in long-term themes, while reducing the emotional pressure of deciding whether today is a “good” or “bad” day to invest.
Where the re-rating opportunity may be
The best hedges are not just defensive. They should also have a reason to perform.
That is why valuation matters. Based on forward P/E ratios and earnings estimates, some non-AI sectors may offer a better balance of resilience and re-rating potential than others.
Sector | Forward P/E | EPS growth profile | Why it can help hedge AI volatility | Key risk |
Healthcare | 17.6x | 2026: 2.0%, 2027: 18.5%, 2028: 9.7% | Best defensive growth candidate. Valuation is below the S&P 500, while earnings could recover meaningfully from 2027. | Drug pricing, patent cliffs, regulation, pipeline risk |
Utilities | 17.6x | Around 9–10% growth through 2026–2028 | Defensive income plus structural demand from electrification, grid investment and power needs. | Higher yields, funding costs, heavy capex |
Financials | 15.1x | Around 9–11% growth | Cheap valuation with steady earnings. Could re-rate if recession fears stay contained and credit holds up. | Credit cycle, regulation, margin pressure |
Materials | 17.6x | Strong 2026 recovery, then more moderate growth | Cyclical catch-up candidate if global growth, China or commodities improve. | Macro-sensitive; earnings can be volatile |
Consumer Staples | 22.6x | Mid-single-digit growth | Useful for stability, but less compelling for re-rating because valuation already looks full. | Expensive for the growth on offer |
Source: Bloomberg data as of 2 July 2026
The portfolio message
AI may still be the growth engine of long-term portfolios. But investors should be careful not to let it become the whole engine, the steering wheel and the brakes.
The next phase may require a more balanced approach: keep core AI exposure, rebalance oversized winners, add defensive growth through healthcare and utilities, include cheaper earnings exposure through financials, and use DCA or AutoInvest to build positions steadily through volatility.
AI can still lead over the long term. But when volatility rises, the best portfolios are not the ones with the most exciting theme. They are the ones with enough balance to stay invested through the swings.
Author
Saxo Research Team
Saxo Bank
Saxo is an award-winning investment firm trusted by 1,200,000+ clients worldwide. Saxo provides the leading online trading platform connecting investors and traders to global financial markets.
