AI trade is showing more discernment in who does well, says Schwab's Liz Ann Sonders

Market Trends & AI Impact - The AI trade continues to dominate market focus, with increasing discernment in stock performance [1][3] - Market observers note a shift from "MAG 7" to "MAG 3" monikers, reflecting changing performance dynamics within mega-cap tech stocks [2] - AI is significantly influencing capital expenditure (capex) trends, leading to a bifurcation in the market [3] - Concerns arise regarding potential risks from an "AI bubble," drawing comparisons to the dot-com era [4] Valuation & Fundamentals - Current market concentration poses a risk, especially for individual investors lacking balanced strategies [5][9] - Despite stretched valuations, underlying fundamentals of leading companies are stronger compared to the dot-com era, characterized by real profit streams [5][6] - The quality of companies, in terms of cash flow and balance sheet strength, is far superior to that of the dot-com era [7] - While not an exact parallel to the dot-com era, there is some sentiment froth and concentration issues in the current market [8][9] Risk Factors & Comparisons - Total market capitalization as a share of GDP has exceeded levels seen in the 1999-2000 period [9] - Household exposure to equities as a share of overall assets is higher than in the late 1990s [10] - A valuation correction may be necessary to allow earnings to catch up with rich valuations, even if the underlying companies are strong [10]