Paradis Labs Says the Easy AI Trade Is Over as Institutions Rotate Into Defensives and Quality Names

Paradis Labs says the easy-money phase in AI stocks has ended after a broad re-rating of the AI semiconductor supply chain in the first half of 2026. In a new note, the market research firm said that the first and second quarters of 2026 saw a near-uniform rally across AI-linked supply chains, with many AI names doubling in a matter of weeks. But Paradis Labs argues that the move was driven less by a real improvement in company fundamentals than by a rebound from heavily compressed valuations. The firm says that pricing repair has now largely run its course. Without a new catalyst, repeating the same kind of surge looks difficult, especially with the macro backdrop still unstable. Paradis Labs points to July’s deleveraging wave as the turning point. After that, it says institutions began cutting exposure to U.S. and European AI small caps and reallocating into defensive sectors such as financials and healthcare. European funds, it adds, have become especially cautious toward high-risk AI names. The note does not say whether this is a long-term asset allocation shift or a shorter-term tactical move. It does say the flow of funds itself signals a clear pullback in risk appetite. For individual investors, the message is to move from sector-level bets to stock selection. Paradis Labs says the next opportunity is likely to sit with large companies that are deeply integrating AI into their core businesses, especially names whose valuations are still relatively compressed. It says those companies share three traits: durable moats, strong cash conversion and better operating efficiency than peers. Once AI spending turns into actual margin expansion, the firm expects the market to rerate those businesses. Under that framework, Paradis Labs names Uber, Netflix and Meta as representative examples. It says each has a scalable business model and is embedding AI into products and operations in measurable ways. The firm’s broader view is to concentrate technology exposure in high-quality names with AI-driven compounding potential, rather than spreading bets across the entire AI supply chain. It also recommends some diversification into non-cyclical sectors outside tech, depending on an investor’s risk tolerance, to deal with ongoing macro uncertainty. Paradis Labs stresses that this is not a bearish call on tech. It is a shift in stock-picking logic, from betting on the AI wave broadly to judging the underlying quality of each company.