AI stocks are the hot trade in 2026 and may continue to dominate markets. However, knowing which AI stock will experience the next pop or drop is tricky, driving the need for diversification. Diversification protects portfolios from unnecessary volatility and risk, providing stable, albeit slower, returns while waiting for those higher-risk tech stocks to appreciate. Defensive stocks share some qualities, including stable demand, reliable dividend payments and lower-than-average beta.
Beta is a widely misunderstood metric. It measures a stock’s volatility relative to a benchmark, typically the S&P 500, rather than the expected volatility of the underlying issue. Low-beta stocks are not immune to volatility, but they have historically been less sensitive to broad market moves. The difference is that their price action is less tied to macroeconomic swings than the average stock because of income stability and capital returns.
