Does the present pullback present a compelling case of buying the dip, or will it leave investors clutching a falling knife? Sceptics note that much of the market’s momentum is built on faith in AI (with its promises of productivity gains) but AI’s history is littered with cycles of hype and heartbreak. On the other hand, buying the dip has undoubtedly been one of this year’s most effective strategies. One popular play, hinging specifically on the Trump administration’s penchant for using brinkmanship to extract concessions from trading partners, even has a nickname: the TACO (“Trump Always Chickens Out”) trade. In essence, it is a bet that tariff-induced sell-offs will swiftly unwind once the White House reverses from its own threats.
If the market’s trajectory since April’s dip from tariff turmoil is any indication, the recent tech sell-off may well look like a compelling entry point for contrarian investors willing to look beyond immediate volatility. After all, tech stocks have largely been flying high since artificial intelligence (AI) lodged itself firmly in public consciousness with ChatGPT’s release in late 2022. Since then, the AI trade has proved to be the gift that keeps on giving, with the tech-heavy Nasdaq surging more than 100% from early 2023 on the back of AI-fuelled optimism.
In the past year alone, Palantir Technologies has run up nearly 400%. Meanwhile, both Nvidia Corp and Tesla, two other poster children of lofty valuations, have rallied close to 50%. For context, the Nasdaq’s 15-year annual return has averaged a comparatively modest 16.4%.
