Stocks to Purchase as Artificial Intelligence and Tariff Policies Fight for Market Supremacy
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In the dynamic world of investments, two contrasting trends are emerging in 2025. While AI-related stocks continue to surge, defensive yield stocks like REITs and utilities are gaining traction amid economic uncertainty.
The Capital Group Dividend Growers ETF (CGDG), an actively managed ETF, is one such defensive yield investment. With 47% of holdings in the US, 29% in Europe, 15% in Asia, and the rest elsewhere, it offers a globally diversified portfolio. CGDG boasts a 2.3% yield and a high-single-digit projected dividend growth rate, making it a solid choice for investors seeking income and growth.
Similarly, American Tower (AMT), a stock on the dividend growth buy list, offers a 3.3% dividend yield and a projected mid- to high-single-digit dividend growth rate. H2O America (HTO), a water utility holding company, is another defensive yield stock on the buy list, aiming to grow adjusted EPS by 5-7% per year and the dividend in that range.
On the other hand, AI stocks are experiencing a significant surge. Nvidia (NVDA), for instance, has performed well due to its state-of-the-art data center semiconductors being in high demand among the hyperscalers. Microsoft (MSFT) and Meta Platforms (META) have also reported impressive earnings growth, driven by cloud and AI-related operations.
However, the AI stock surge may not be a full-blown bubble but carries increased risk and valuation concerns in some companies. The Roundhill Generative AI & Technology ETF (CHAT), while performing well, has not yet reached the heights of the tech bubble of the late 90s.
Meanwhile, defensive yield stocks like REITs and utilities are presenting attractive opportunities. Mortgage REITs, with high yields (6%+) and favorable net interest margins, are particularly appealing in a high-interest-rate environment. Utilities, viewed as defensive assets, tend to hold up better during tougher markets given their stable earnings and high dividends.
Importantly, utilities stand to benefit from the ongoing AI infrastructure build-out, since AI data centers and computing require substantially more energy. Power demand from AI is forecasted to increase dramatically by 2026 and beyond, potentially boosting utilities’ revenue and profits.
Investors aiming for risk mitigation might consider reducing exposure to capital-intensive tech sectors while increasing allocations to income-generating, defensive yield stocks like select REITs and utilities that have structural growth linked to AI expansion.
The next 2-3 years should offer a panoply of tailwinds for commercial real estate, including lower long-term interest rates, increased certainty pertaining to trade policy, and a huge drop in deliveries of new supply. This, coupled with the rising demand for energy from AI, makes defensive yield stocks an attractive investment option for those seeking income and growth amid economic uncertainty.
[1] S&P 500 Earnings Down 3% in 2025 Excluding Tech and Communication Services [2] Defensive Yield Stocks Offer Income and Portfolio Diversification Benefits [3] AI Stock Surge: Signs of Overenthusiasm but No Confirmed Bubble [4] Utilities Stand to Benefit from Rising AI-Related Energy Demand
- As investors seek to mitigate risks and balance their portfolios, they might consider allocating more to defensive yield stocks such as REITs and utilities, which offer income and portfolio diversification benefits beyond the tech sector.
- Amidst economic uncertainty, the next 2-3 years could present attractive opportunities for those investing in defensive yield stocks, given the lower long-term interest rates, increased certainty in trade policy, and a drop in new supply for commercial real estate.
- Although the AI stock surge shows signs of overenthusiasm, it does not indicate a confirmed bubble, as the Roundhill Generative AI & Technology ETF (CHAT) has yet to reach the heights of the tech bubble from the late 90s.
- Utilities, which are seen as defensive assets, can benefit from the rising energy demand caused by the AI infrastructure build-out. This demand is forecasted to increase substantially by 2026 and beyond, potentially boosting utilities’ revenue and profits.
