The Cycle Has Turned for These Overlooked AI Plays
BY KEITH KAPLAN
CEO, TRADESMITH
For most of history, the Moon was a mystery.
Was it formed elsewhere in the solar system and later captured by our planet’s gravitational pull?
Or did it originate here on the Earth?
In the 1960s, scientists landed on the likely answer after the Apollo missions brought back about 47 pounds of lunar rocks.
Chemically, they looked almost identical to rocks here on Earth. The most likely reason is that the Moon has terrestrial origins.
But how exactly did Earth spawn its own moon?
According to the “giant impact” hypothesis, billions of years ago, a Mars-sized planet slammed into Earth. The collision threw molten rock into orbit, where it cooled, clumped together, and began orbiting us.
This collision didn’t just create the Moon. It also knocked Earth off balance. As a result, our planet rotates on an axis tilted by about 23.5 degrees.
This is why we have seasons. As Earth tilts toward the Sun, days grow longer. As it tilts away, they grow shorter.
Those seasonal rhythms are the foundation of many of the cycles that shape our everyday lives.
- We eat differently across the year as growing seasons change.
- We heat our homes in winter and cool them in summer.
- We plan travel, wardrobes, and big purchases around the calendar.
Open any basic guide to investing, and you’ll learn that markets move in cycles, too. Stocks rise in bull markets and fall in bear markets. They crash… then recover. Like the seasons, one cycle eventually gives way to the next.
The real edge comes from recognizing when the cycle has turned from bearish to bullish – and having the discipline to act beforethe crowd catches on.
The big question: How do we know where we are in the cycle?
If you’re like most investors, you rely on hunches, guesswork, and gut feelings. At TradeSmith, we take a different approach. We turn to the data.
Today, I’ll show you the TradeSmith tools I use to gauge where we are in market cycles.
And we’ll look at one long-ignored sector where the cycle has turned, thanks to some help from the world’s most powerful tech trend – artificial intelligence.
You can play the AI boom by buying Nvidia, Google, and other direct AI plays like everyone else. But this overlooked sector may offer the most attractive risk-reward way to play AI at this stage of the cycle – without chasing the obvious winners.
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Why It Pays to Watch Short-Term Health
That sector is biotech.
Last year, the SPDR S&P Biotech ETF (XBI) gained about 33%. That makes it one of the market’s best-performing sectors.
And so far in 2026, there have been even steeper gains for biotech companies focused on cancer drug development.
Corvus Pharmaceuticals (CRVS) and ImmunityBio (IBRX), which develop drugs to help your immune system fight the disease, have nearly tripled in value. And shares in Erasca (ERAS), which develops drugs aimed at shutting down specific genetic mutations that drive tumor growth, are also close to tripling.
It wasn’t always this way.
After peaking in early 2021, biotech got crushed. From that peak into early 2022, XBI fell as much as 55% – one of its worst drawdowns in years.
But like all cycles, that bear market ran its course. Now, we’re in a bull market in biotech again.
If you’d been following TradeSmith’s Short-Term Health indicator, you would have known when the odds began to shift.
Short-Term Health is a version of our classic Health indicator that’s “tuned” for shorter-term shifts in trends.
It fired a buy alert for XBI last year on July 14. Since then, it’s up 40%.
The signal didn’t fire at the exact bottom in April 2025. That may sound like a flaw – but it’s actually a feature.
Don’t Buy at These Extremes
Think about waves at the beach.
A wave rushes in with force, but it can only go so far before it runs out of energy. At a certain point, momentum is exhausted, and the water starts flowing back out.
Markets behave the same way. Every strong move eventually runs out of steam.
Our work is about identifying those exhaustion points – the moments when a move has gone too far and the odds begin to favor a reversal.
But there’s important nuance…
In our experience, it’s not enough to spot an extreme case and immediately bet against it. Sometimes markets stay overbought longer than you expect. Sometimes they stay oversold. Acting too early is how people get run over.
That’s why we pair cycle analysis with trend confirmation. We look for evidence that momentum has picked up and a new cycle is confirmed.
We won’t catch the entire move higher. But we won’t get wrongfooted by as many false buy signals, either.
We use proprietary software to analyze thousands of stocks, ETFs, and markets searching for these conditions.
We’re not looking for perfection. We just need the odds tilted in our favor – over and over again.
And it’s not just price momentum that’s a tailwind for biotech right now. This is shaping up to be a uniquely bullish cycle, thanks to the most powerful tech trend of our lifetimes – artificial intelligence.
AI Is Unlocking Biology’s Deepest Secrets
AI isn’t a biotech buzzword. It’s doing real work and producing real results.
That shouldn’t come as a surprise. Modern biology has become a data problem, and machines are better than humans at finding patterns inside massive datasets.
By harnessing the power of AI, biotech firms are speeding up the slowest, most expensive parts of drug discovery: identifying targets, modeling molecules, and narrowing thousands of possibilities down to a few real candidates. For example:
- DeepMind’s AlphaFold has predicted more than 200 million protein structures – creating a searchable map of how the building blocks of life fold and function, something drugmakers used to spend years figuring out by trial and error.
- Insilico Medicine has an AI-designed drug for idiopathic pulmonary fibrosis–a deadly lung disease that affects tens of thousands of new patients each year in the U.S. alone – that’s already reached Phase II trials.
- Companies like Recursion are building drug discovery around massive datasets and AI models – backed by partnerships like its $50 million Nvidia collaboration.
And you’re going to be hearing about even more compelling stock stories as companies leverage tech to unlock biology’s deepest secrets.
For instance, AI-designed drugs are moving deeper into human trials. We’re about to see more cases like Insilico’s – AI-generated drug candidates progressing from early safety trials into mid-stage efficacy trials. That’s the point where biotech valuations start to change meaningfully.
AI also helps companies kill bad drug candidates earlier. That sounds negative, but it saves time and capital. And it shifts money toward the winners faster. Markets tend to reward that kind of efficiency.
Also, disease areas are opening up that were previously “too hard.”
Fibrosis, neurodegenerative diseases, and rare genetic disorders – are now becoming viable targets for drug discovery because models can simulate interactions humans couldn’t.
What to Do
If you’re building a portfolio for growth, biotech deserves a spot. And XBI is a great way to play it.
Instead of betting on one drug or one company, it owns dozens of U.S. biotech firms – from early-stage innovators to established names.
Crucially, it’s equally weighted, not dominated by a handful of giants. That means smaller companies – where breakthroughs and takeovers tend to happen – actually move the needle.
And what’s cool about these sector rotations is that, even when an ETF has already jumped 40%, like XBI has, there can still be plenty of stocks in that ETF that are in their Short-Term Green Zone.
And just a couple of simple filters in the TradeSmith Screener can find them for you. Platinum readers and folks who have Ideas by TradeSmith, Trade360, among other subscriptions can screen for Short-Term Health in the industry Biotechnology.
I also regularly post on my X accountwhen these cyclical shifts catch my attention. So make sure to follow me there at @KeithTradeSmith . It’s the best way to keep track of the opportunities I’m seeing in real time as I put TradeSmith’s tools through their paces.
All the best,
Keith Kaplan
CEO, TradeSmith
RJ Hamster 