Dividend Stocks Underperform Amid AI Boom, Market Shift Looming

The S&P 500 has outperformed the dividend stock sector since the AI boom in early 2023. The Schwab U.S. Dividend ETF (SCHD) has underperformed the SPY, indicating a shift in market preferences towards growth stocks over dividend stocks. This trend may indicate a change in investor sentiment and could have implications for the future of the market.

The S&P 500 has demonstrated significant outperformance over the dividend stock sector since the AI boom in early 2023. This trend is evident in the performance of the Schwab U.S. Dividend ETF (SCHD), which has underperformed the S&P 500 Index (SPY) 3 Emerging Tech Stocks That Could Go Parabolic^[1]. This shift in market preferences towards growth stocks over dividend stocks indicates a change in investor sentiment and has implications for the future of the market.

The AI boom has led to a surge in demand for innovative technologies, particularly in the areas of semiconductors, robotics, and electric air mobility. Companies like Navitas Semiconductor, SS Innovations, and Vertical Aerospace are at the forefront of these technological advancements. Navitas Semiconductor, for instance, has been selected to help build Nvidia's next-generation 800V HVDC architecture, which is expected to begin deployment in 2027 . Similarly, SS Innovations plans to submit its surgical robotic system to the FDA in Q4 2025, while Vertical Aerospace targets 2028 certification for its eVTOL aircraft .

The performance of these emerging tech stocks, while volatile, offers investors exposure to long-term themes such as AI, surgical robotics, and electric air mobility. However, the boom-or-bust profile of these stocks means they are not suitable as core holdings for most investors. Instead, they can be considered as part of a well-diversified portfolio to capitalize on the potential long-term gains.

The shift towards growth stocks is likely driven by several factors. Firstly, the high growth potential of emerging technologies attracts investors seeking high returns. Secondly, the ongoing AI boom has created a favorable environment for tech companies, driving their stock prices higher. Lastly, the underperformance of dividend stocks may be a result of their lower growth prospects compared to their tech counterparts.

Investors should be cautious when considering these emerging tech stocks. While the potential for outsize gains is significant, the risks are also high. Missed milestones, regulatory delays, or cash burn can quickly send these stocks crashing back down. Therefore, investors should approach these stocks with a long-term perspective and a well-diversified portfolio.

In conclusion, the S&P 500's outperformance over the dividend stock sector since the AI boom reflects a shift in market preferences towards growth stocks. This trend is driven by the high growth potential of emerging technologies and the favorable environment created by the AI boom. While these emerging tech stocks offer significant long-term potential, investors should approach them with caution and a well-diversified portfolio.