Beyond the AI Trade: Where Charlie Babinskoy Sees Value in Stocks and Bonds Now

As the market's AI rally extends and indexes climb, the question of how much of a portfolio is already tied to AI becomes central to risk management. Charlie Babinskoy, vice chair of Ariel, joins the discussion to look past the AI headline trade and at where he believes diversification currently pays off. The conversation covers index selection, single-stock examples, and a notable shift in his view on fixed income.

■ Market Backdrop and AI Concentration Risk
- Recent index performance and signs of a crowded, public-driven AI trade
- Nasdaq 100 versus the S&P 500 as a core holding for long-term investors
- Why Nasdaq companies' results depend heavily on AI spending delivering returns

■ Diversifying Beyond AI
- The point that index ownership already carries meaningful AI exposure
- Non-AI areas he favors, including energy, home products, and consumer discretionary
- Year-to-date performance context for a handful of individual names

■ Bonds Reconsidered
- Why bonds produced poor returns for much of the past two decades
- What current real yields on long-dated Treasuries imply for expected returns
- The demand for credit — including from AI investment and foreign deficits — pushing rates higher

Those building long-term portfolios themselves, or advising others, can take away a practical framework for balancing index exposure with sector and asset-class diversification. It is useful for investors trying to judge when a popular theme is priced in and how to think about fixed income in today's rate environment.