Jefferies recommends owning quality, low-stress stocks to ride out the summer as markets become more volatile amid increased concerns tied to investment in artificial intelligence.
AI-related questions range from potential overcapacity, the profits that will result from hyperscalers investing an estimated $700 billion in capital spending and rising costs for tokens, the fees paid to AI models, according to a note from Desh Peramunetilleke, head of quantitative strategy at Jefferies
As evidence of the popularity of all things AI, the S&P 500 momentum index has outperformed the broader stock market by more than 70% since 2024, close to levels seen during the dot-com run of the 1990s. Before the outbreak of war with Iran, momentum strategies had included materials and defense stocks, but currently AI alone is carrying the ball, “increasing the risk of an unwind on adverse sentiment,” the strategist wrote Monday. “While we still see the theme as a long-term winner, the above reasons could drive an unwinding of the AI-led momentum,” Peramunetilleke said. Peramunetilleke and his team recommended a list of what they call high-quality companies with low momentum to ride out any potential AI-led storms.
Jefferies looked for companies with a high quality score, market values of more than $10 billion, solid fundamentals and long-term free cash flow yields above 3%. The group also had to include stocks with limited momentum and attractive valuations selling for less than 20 times expected earnings over the next year. Here are 10 stocks from Jefferies’ list: Drugmaker AbbVie scored a top quality score from Jefferies, which sees the company delivering compound annual earnings growth of nearly 28% in 2026-2027, with a free cash flow yield of 5.2%, one of the stronger growth and cash flow combinations on the list.