“Don’t bet on the final winner of LLMs. Be the one selling the shovels.”
That was the clearest line from Art Hogan, chief market strategist at B. Riley Wealth, in a TheStreet podcast aired on July 13 under the title Playbook for the Next Market Pullback (Buy These Stocks Now). His broader argument was about concentration risk, portfolio balance and where investors should rotate if AI-driven winners have become too large inside an equity portfolio.
Hogan, a Wall Street veteran with more than three decades of experience, previously served as chief market analyst at Jefferies and head of research at Lazard Capital. He argued that the real question for investors is not whether they still believe in AI, but whether they are willing to admit that a portfolio has drifted out of balance when a holding such as Nvidia grows from 5% to 12% of total exposure.
A barbell built around tech on one side and three sectors on the other
Asked what kind of portfolio could better withstand a larger market drawdown without simply moving into cash, Hogan said investors should keep asking whether they own only AI and AI-linked technology, or whether they also have exposure to other parts of the market.
AI is driving a large share of earnings growth, he said, but it is not driving all of it. Over the next few weeks, second-quarter earnings reports could show that all 11 sectors in the S&P 500 posted positive earnings growth for the first time in five quarters. For a long stretch, technology and communication services, where the Magnificent Seven are concentrated, carried most of the growth. Hogan said that backdrop is starting to change.
That shift, in his view, makes this a good time to rethink what else belongs in a portfolio. He said small caps have already become part of that answer, but singled out three sectors in particular: industrials, financials and healthcare. Those groups have improved sharply this year, and on days when tech sells off, they have often been among the best-performing parts of the market. He also said improving earnings and merger-and-acquisition activity are adding support.
His portfolio implementation is straightforward. If Nvidia started as a 5% position and has appreciated to 12%, Hogan said investors can rebalance once a quarter, trim some of that overweight and move the proceeds into healthcare, financials and industrials. That, he said, is the barbell structure.
Why industrials, financials and healthcare are the other side of the trade
Hogan said these three sectors offer some of the biggest upside surprise potential this year.
For industrials, the case is tied to physical buildout. Data-center construction requires large industrial inputs, and the need to rebuild U.S. infrastructure remains pressing. Hogan said the sector is going through a revival that should continue.
For financials, he pointed to several drivers at once. Capital markets have been highly active in recent months, with a wave of large initial public offerings already in the market and more still to come. He also said M&A volume last quarter was eight times the level seen in the same period a year earlier. Just as important, in his view, financials were ignored for too long and are only beginning to regain investor attention. The sector was already one of the S&P 500’s top performers last quarter, and he expects that to continue through the year.
Healthcare is his favorite of the three. Hogan said a large number of new drugs are now in Phase 3 trials, while smaller biotech companies are good at research and clinical development but often lack the ability to commercialize products at scale. That dynamic is pushing large pharmaceutical companies into aggressive dealmaking. He noted that Eli Lilly alone has already completed six deals this year. He also said the regulatory environment for M&A approvals is easing, helping speed up the process.
Stock picking or ETFs
Hogan outlined two ways to gain exposure.
One is direct stock selection. He said his team has a recommended list that includes ATI on the industrial side, JPMorgan Chase and Visa in financials, and Eli Lilly and AbbVie in healthcare. Investors who want to do the work can take the individual-stock route.
The simpler approach is to buy sector ETFs. Hogan noted that each S&P 500 sector has an index product attached to it, allowing investors to participate in any sector move higher without building a stock-specific research process. For the cleanest barbell structure, he said, one side can be a technology ETF and the other side can be ETFs tied to industrials, financials and healthcare.
He would wait until bank earnings are out
When asked whether investors should add to financials before bank earnings or wait for the numbers, Hogan said he would wait.
His reasoning was that when a company is already trading near all-time highs, even a very strong earnings report may not produce the expected stock reaction. He used JPMorgan as the example, saying its market capitalization is approaching $900 billion. At that level, even strong revenue, profit and guidance can still meet a “buy the rumor, sell the fact” response during earnings season.
He said investors can wait until the large banks have all reported, let one or two weeks pass, and then reassess. In his view, JPMorgan will probably still be trading around a similar level, but investors would avoid the day-of-report volatility.
On regional banks, Hogan said they are “absolutely” worth watching. He argued that the U.S. has more banks than any other developed market and is effectively overbanked. Compliance and technology costs keep rising, and over the next 24 months he expects a meaningful wave of consolidation and M&A among regional banks. Small community banks could be absorbed by larger regionals, while super-regionals and money-center banks may use the environment to expand their geographic footprint. That is the core of his bullish case: fewer banks, more value for the survivors.
What he would buy in a tech pullback
The host pointed to same-day declines in SanDisk, down 8%, ARM, down 8%, and Micron, down 4%, and asked which tech names Hogan would add on weakness.
He began with a broader point: many of these stocks are already up 50% to 125% year to date, which means sharp daily swings are likely to be normal rather than unusual.
His top three technology names are Apple, Microsoft and Nvidia.
Apple is his first choice. Hogan said Apple has finally laid out its AI strategy as a fast follower that works with multiple partners to make Apple Intelligence more useful. The market had spent a long time wondering how Apple would approach AI, and he said that question has now been answered. With a new iPhone launch ahead, a large cash position and shareholder-friendly management, Hogan said the stock still has room even near record levels.
He described Microsoft as undervalued. In his view, the stock was thrown out with the broader software sector because investors assume AI will disrupt all software. He disagrees with that conclusion, especially in Microsoft’s case. He said Microsoft is embedded in the workflows of 95% of S&P 500 companies and would be extremely difficult to replace. He also called it one of the cheapest names in technology.
Nvidia remains his favorite. Hogan said the company trades at a valuation multiple below the market average, carries gross margins near 80% and continues to use free cash flow to expand its business reach. This year, he said, Nvidia has actually become a source of funds for investors rotating into other trades, and that is exactly why he sees it as a buying opportunity.
What he is avoiding
On the sell or avoid side, Hogan first warned about newly listed, high-momentum names.
He cited SK Hynix’s ADR, which recently listed in the U.S. after rising about 160% over the past 12 months. He said that setup leaves late investors chasing at elevated levels, while long-term holders in Korea have finally gained an exit channel. In his view, that ownership structure calls for caution.
He also argued that the debt-financing pipeline for hyperscale AI is starting to show cracks. According to Hogan, these companies raised $300 billion of debt with relative ease in the first half of the year, but the second half will not be as easy, even though spending needs are not going away. For public companies and would-be issuers that rely on continued cash burn to train models, he said investors are effectively buying faith in future returns on capital. He would rather own the shovel sellers.
Pressed for names he would avoid, Hogan said a SpaceX IPO would be spectacular only if investors are willing to believe that the company’s $18 billion of revenue last year can become $380 billion by 2030. He said ordinary investors cannot see that window clearly, and the valuation already appears to pull a lot of that future into the current price. In effect, he said, buyers are wagering on what will happen five years from now.
He used the same framework for large language models. This, he said, is a horse race that will not produce seven or eight winners. It will likely produce only the top two or three finishers. He noted that many investors currently see Anthropic’s B2B route as the strongest, but that also suggests five or six other competitors may not make it to the end. That is why he does not want to bet directly on the eventual winner.
If he could make only one change in the second half
Hogan’s answer was to buy a beaten-down “fallen angel.”
He named Nike and Lululemon as examples. These brands, he said, have already taken significant damage, but that is precisely why the opportunity exists. He did not say one of them is definitively the right choice. His point was that if he could make only one portfolio adjustment in the second half, it would be to pick up a high-quality consumer brand that has been punished too heavily.
His S&P 500 target remains 7,800, with upside to 8,000
Hogan said his official year-end target for the S&P 500 is still 7,800, though he leans toward the upside. If this earnings season brings broad guidance increases and lifts full-year earnings-per-share expectations, he said the index could reach 8,000 on the same valuation multiple.
Asked what could take the market to 8,000, he gave a one-word answer: earnings.
The main risk: Iran, oil, inflation and earnings pressure
Even with that constructive view, Hogan was explicit about the biggest risk. If the Iran conflict drags on, energy prices stay elevated longer, inflation pressure stays hotter, rate pressure remains higher, and the market faces a more serious headwind.
He said the market had spent the past month assuming an exit would come quickly. Oil briefly fell back to pre-conflict levels last week, then tensions heated up again. If investors are still discussing Iran by Labor Day, with WTI crude in the $75-$80 range and gasoline approaching $5, he said economic growth will slow and earnings expectations will be cut. The U.S. is a consumer-driven economy, and the problem starts when gasoline costs squeeze disposable income.
Hogan also pointed to backwardation in the oil market, where front-month prices remain above longer-dated contracts. That structure suggests the market still expects oil prices to fall in the fourth quarter. If that shape flips and speculators begin to assume high prices will last or move even higher, both businesses and consumers would start making different decisions.
Under that scenario, he said S&P 500 earnings growth could be close to 20% in the second quarter, then get cut roughly in half in the third quarter.
Even then, he argued, the defensive side of the barbell should hold up. Consumers can cut many expenses, he said, but they cannot stop seeing doctors or stop using banks. Healthcare and financial services are needs, not wants, which is why those sectors carry natural defensive characteristics in his framework.
Rapid fire: CPI matters more than bank earnings, and no Fed cut this year
In the closing rapid-fire section, Hogan offered a series of short calls.
CPI matters more to markets than bank earnings. He said bank results are unlikely to be the problem; CPI is what determines the Federal Reserve’s next move.
If CPI cools, he would wait for confirmation rather than buy immediately. One softer print is not enough. He wants to see two consecutive months of decline.
Between sticky inflation and slowing consumption, sticky inflation is the bigger concern. In his words, betting against the U.S. consumer has not been a winning trade for a hundred years. Inflation is what makes households start cutting back.
He does not expect a Fed rate cut this year. The only likely move in 2026, in his view, is no move at all. Cuts are more likely in the first half of next year.
If rates move a bit higher in the second half, technology should lead again while small-cap value slows.
Between industrials and financials, he sees more upside in financials. Industrials have already had a strong run over the past one to two years, while financials are only now beginning to be noticed.
He is not ready to broadly cut technology exposure. His phrase was essentially to let the market play out. He said many Mag 7 names and software stocks that have been under pressure since last October still have not fully participated. If memory-chip enthusiasm cools even slightly, capital could rotate back into those lagging areas.
On storage chips, he said the supply-demand imbalance is real and wafer-fab construction is difficult, so supply cannot quickly catch demand, but some stock valuations have clearly gone too far.
If he could buy only one technology stock today, it would be Apple, which he called the best name in the group with major positive catalysts ahead, especially the next iPhone launch.
If he had to avoid one tech stock, it would be Meta. He said he does not have a clear sense of where the company is going next. Despite a solid rebound, he sees a business model that still shifts around, making it the Mag 7 name he finds least interesting.
What could ruin the path to 8,000? Inflation eating into earnings. More specifically, if CPI rises from the 3% range into the 4% range and stays there through the first quarter of next year, that would become a real earnings headwind.
The podcast was framed as a guide for the next market pullback, but Hogan’s structure was simple. Keep the core technology names he trusts most, recycle part of the gains into industrials, financials and healthcare, and avoid putting the whole trade on a handful of AI winners. The variable that could break that setup, in his telling, is inflation.