Another Stock Bites the AI Dust

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

Fresh AI drama sends tech stocks near risk-off levels
These are the “secret AI” stocks weathering the storm
Our AI trading engine is betting big on defense

AI is on a path of tech market destruction…

2026 may prove to be the year when the AI megatrend took its most destructive form.

This year, advances in AI models – particularly software coding tool Claude Code from private AI leader Anthropic – have hit the market values of companies across software, financial and legal services, logistics, and more.

The biggest casualties have been traditional software firms.

Just look at creative software maker Adobe (ADBE), business software provider Intuit (INTU), and project management software maker Atlassian (TEAM). As of yesterday’s close, these stocks were down 26%, 43%, and 56% so far this year.

Over the same period, most of the major mega-cap AI stocks like Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), and Google parent Alphabet (GOOGL) are down or flat.

These are some of the market’s biggest AI spenders, with hundreds of billions in capital expenditures planned for 2026.

It feels like there’s nowhere to hide.

And another landmine just dropped in the path of legacy tech…

Anthropic made another market-moving announcement on Monday.

It’s adding a key feature to its Claude Code tool – support for legacy programming language COBOL.

Without getting too technical, COBOL is a bedrock tool in the computing world. Major banks, retailers, airlines, and government agencies all run critical systems on it. If you've ever used an ATM, filed taxes, or collected a government benefit, there's a good chance COBOL was involved.

At the same time, COBOL is old. It’s been around since the 1950s and isn’t regularly taught to new computer science students. So, the pool of talented COBOL developers who can maintain these key systems is dwindling into retirement.

Why is this important to us as investors?

Because one major publicly traded company is considered the go-to source for COBOL system development: IBM (IBM). It created the first mainframe systems COBOL depends on, making it a key structural pillar.

And on the announcement from Anthropic, it fell more than 13%.

It was IBM’s worst day since October 2000 – around the peak of the dot-com bubble. And it brings its total year-to-date loss to 23%.

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It was a rough day if you ignored TradeSmith’s systems…

Here at TradeSmith, our mission is to help you beat the market by letting the data do the talking – not news headlines or hot takes on social media.

And if you were using TradeSmith’s tools, you would’ve been cautious about IBM more than a month ago… and out long before Monday’s announcement from Anthropic.

The key system in question here is our Short-Term Health Indicator.

It measures a stock's recent price action against its own typical behavior – how far and how fast it tends to move – to give you a daily read on whether momentum is building or breaking down.

This simple trading signal uses each stock’s historical volatility to determine clear entry and exit points. It works like a stoplight: Green means Buy, Yellow means Caution, and Red means Sell.

With it, you can quickly adapt to a stock’s short-term trend.

And it flashed a sell signal ahead of Monday’s big move.

Here’s the chart for IBM. Our Short-Term Health signal flashed red last Thursday, Feb.19… following a yellow Caution signal that flashed on Jan. 12 when IBM was trading near the highs:

If you were following Short-Term Health, you might have taken some profits off the table as IBM moved into a Yellow Zone in mid-January… or tightened your stop loss.

And if you’re still holding IBM after its Red signal, now’s the time to cut and run before the bleeding gets worse.

One other key note: The tech-heavy Nasdaq 100 index itself has slipped into the Short-Term Health Yellow Zone. That’s the first Caution signal for the index since mid-March of last year, just before the infamous Liberation Day crash:

This isn’t a death sentence. The Nasdaq has entered the Yellow Zone before and continued its uptrend – like in May and October of 2024. But this caution sign doesn’t come around often and is worth keeping on your radar.

But plenty of stocks have weathered the storm this year…

If you own most of the stocks at the top of the Nasdaq, you probably aren’t having a good time this year.

But there are plenty of stocks that are rising right now – they just aren’t the stocks that have worked from 2023-2025.

How do you find them?

Simple: Look for stocks with high Quantum Scores.

The Quantum Score is a stock-rating system built by Jason Bodner, who spent years on Wall Street filling multimillion-dollar trades for the biggest institutional investors in the world.

Watching that money move taught him something most investors never see: The biggest gains tend to follow the biggest buyers.

So when he left Wall Street, he built a system to track them.

The Quantum Score combines a company's fundamental strength (earnings, revenue, profit margin growth) and its technical momentum (price action and unusually large buying volume). Every stock gets a single score from 0 to 100. The higher the score, the better – but you don’t want to buy anything below a 75.

Jason regularly tracks the top 10 Quantum Score stocks for his subscribers. And right now, the stocks scoring highest aren't exactly the household AI names that dominated the past three years:

Be honest – how many of the stocks above did you already know about? I can tell you with confidence I’ve heard of four of them. But the other six just shot to the top of my watchlist.

And my eyes actually zero in on the bottom of the list with Chinese private education company New Oriental Education (EDU).

One, it has a Quantum Score of nearly 96 – thanks to strong fundamental growth rates and big money interest. That’s not the highest score of the top 10 list, but it’s still in the top 4% of all stocks we track.

Two, it flashed a new Short-Term Health buy signal on Jan. 2 amid an uptrend it started in 2022:

Three, this company has huge potential to leverage AI.

Education is ripe for AI disruption…

When deep access to the world’s knowledge is at any student’s fingertips, the value of traditional schooling comes into question.

It’s not hard to imagine a future where students can skip the Ivy League universities and heaps of student debt and learn everything they need from an AI-first program.

This isn’t just speculation, either. New Oriental said in its recent earnings report that it’s embedding AI not just across its core service offerings, but to streamline its internal operations as well.

These are the kinds of “secret” AI stocks that are winning right now.

And the kinds that Jason Bodner – along with technologist and angel investor Jeff Brown – have been targeting recently.

New Oriental is just one example of the kind of stock Jason and Jeff are focused on right now – companies that don't look like AI plays on the surface but are quietly embedding the technology into everything they do.

They call them "Secret AI Stocks." And according to their data, the window to get in on the best ones is closing fast.

Jason's system shows that waiting even a few weeks can cut your potential gains by a third or more.

That's why you should join Jason and Jeff tomorrow, Feb. 25 at 8 p.m. ET for the Secret AI Stocks Summit -- where they'll each give away one live pick, free. Reserve your seat here.

Finally, let’s check on the Predictive Alpha leaderboard…

Before you go, I want to show you the kinds of stocks our AI-powered stock forecasting algorithm, Predictive Alpha, is targeting right now.

Here’s one of the top forecasts in our system right now, on defense company Moog (MOG.A):

Moog is a precision motion control company – it makes the hardware that controls exactly how things move in high-stakes environments. Its products show up in fighter jets, missiles, satellites, and spacecraft, as well as industrial machinery and medical devices.

It's not a household name, but it's deeply embedded in defense and aerospace supply chains.

And right now, Predictive Alpha forecasts MOG.A will rise 8.2% by March 20. And forecasts like this have been accurate 93% of the time in the past.

In a market where AI is carving up software companies and leaving the biggest tech names flat on the year, defense and aerospace is looking like a good place to hide out.

Moog doesn't write code. It doesn't run data centers. It makes the physical hardware that keeps missiles on target and satellites in orbit – the kind of business that no AI tool is replacing anytime soon.

That's the thread running through everything we've looked at today. The stocks weathering this storm aren't the ones you'd expect. They're the ones with strong fundamentals, big money flowing in, and businesses that sit outside AI's blast radius – or are using it to their advantage.

The Short-Term Health signal kept you out of IBM before Monday's collapse. The Quantum Score is pointing toward the kind of “Secret AI” names most investors have never heard of. And Predictive Alpha is finding momentum in defense while software burns.

Another Stock Bites the AI Dust