AI Trade Selloff Divides Wall Street; CrowdStrike, Meta Lead CNBC Club Winners

As of Wednesday's close, the Nasdaq Composite was down 2.5% for the week, while the less tech-exposed Dow Jones Industrial Average was flat since the prior Friday's close, the Club said. A hot inflation report Thursday morning and another weak session for AI stocks widened the gap between market winners and losers, it added. Expectations of at least one more Federal Reserve interest rate increase before year-end also weighed on investors worried that companies are borrowing too much to fund AI infrastructure.

Over the five weeks from the Club's Sept. 10 monthly meeting through Wednesday's close, the tech-heavy Nasdaq was up 2.3%, while the Dow was down nearly 1%, according to the review. The Club examined its 32-stock portfolio ahead of its October monthly meeting.

CrowdStrike was the top performer, rising 19.4%. Cybersecurity stocks rallied as concerns about risks from more powerful AI models reinforced demand for network and data protection, the Club said. It pointed to an essay by Anthropic CEO Dario Amodei calling for frontier AI labs to slow model development amid safety concerns. CrowdStrike has more than doubled this year, and the Club said it was cautious about chasing the stock after its run, though it still views cybersecurity as a portfolio cornerstone and AI adoption as a long-term growth driver.

Meta Platforms gained 14.4%. The Club said the Facebook and Instagram parent is beginning to show how its large AI investments could pay off. Shares have surged since the Sept. 8 launch of Muse, its personal AI agent, which quickly reached the top of the app charts. This week Meta released Muse Wonder and the more powerful Muse Wonder Full. Wells Fargo said Muse Wonder Full has reached the 'AI frontier' and ranks among the industry's most advanced models, according to the Club. The releases could help Meta attract more paying subscribers to Muse and its coding tools, creating revenue beyond advertising. The Club said it is too early to know how meaningful that revenue will be, but the pace of AI releases is easing earlier concerns about whether Meta's AI spending will generate sufficient returns.

TJX Companies rose 13%. The off-price retailer rebounded from a steep selloff after disappointing August earnings and broader pressure on consumer stocks from higher inflation and interest rates. The Club noted concerns after second-quarter results showed slowing comparable sales at Marmaxx, its largest division, which includes TJ Maxx and Marshalls. At the time, the CEO said it was a product mix problem that was being addressed. A recent Morgan Stanley survey suggests the second-quarter weakness was driven more by consumers pulling back on spending, the Club said. The Club added to its TJX position several times after the post-earnings weakness and remains optimistic about the longer-term opportunity, even if a meaningful sales recovery takes another quarter or two.

Bank of New York fell 15.4% and Goldman Sachs dropped 13.8%, making the financial holdings among the portfolio's biggest laggards. The Club said the Fed's first rate hike in three years at its September meeting intensified concerns about the outlook for banks. Higher rates can increase funding costs, weaken loan demand and slow capital markets activity such as mergers and acquisitions and initial public offerings. Despite solid earnings from Goldman Sachs on Tuesday, the stock continued to decline. The Club views the pullback as a buying opportunity. On Thursday, BNY reported earnings and saw better-than-expected fee growth; the Club said it would provide full analysis on BNY's quarter later.

FedEx Freight fell 12.4%. The Club said shares of the less-than-truckload shipping company struggled as the ongoing Iran war drove diesel prices higher. Weakness extended across transportation, with the iShares Transportation ETF falling 3% and trucking company J.B. Hunt sliding 13% since the Club's last monthly meeting. The Club said it remains optimistic about FedEx Freight's long-term prospects and will look for signs of improving shipping demand.