The swift embrace of generative artificial intelligence (AI) has undoubtedly caused a stir in the market this year. After the initial wave of enthusiasm, investors are becoming increasingly cognizant of the potential risks, calling for a more refined approach in the selection of stocks.
Diverse industries such as IT services, consultancy, media, information, and education are currently under intense scrutiny by portfolio managers evaluating the potential impact of AI disruption.
The promise and challenges of AI
Overall, the effect of AI on corporate profitability promises to be exceedingly beneficial. Besides the obvious victors in the chip sector, like Nvidia, analysts caution that there could also be contenders facing losses in Europe and the United States.
Leading global management consulting firm, McKinsey, projects that generative AI could potentially add a staggering $7.3 trillion in value to the global economy annually. The firm further envisages that automation could be feasible for half of the work activities today between 2030 and 2060.
However, this prediction also presents formidable challenges to corporations, such as workforce redundancies and the necessity to overhaul business models, to harness the full potential of AI.
Gilles Guibout, head of European equities at AXA Investment Managers, warns of a potential deflationary impact of AI. He suggests that customers may negotiate lower prices, while lean startups could chip away market share from existing businesses grappling with process redesigns.
This could lead to slowing sales growth and share price underperformance, especially for companies with robust competition or where growth hinges on the workforce.
Guibout cites the example of IT services, which could see significant price reductions as coding requirements drop due to AI.
Investor sentiments and market reactions
A June survey conducted by Bank of America revealed that only 40% of global investors expect AI to boost profits or jobs, while 29% don’t anticipate any such increase.
Anxiety about AI has already made waves in the markets. Companies like French outsourcing firm Teleperformance and US-based Taskus, which provide services that could be easily replaced by bots, have seen a decline of approximately 30% in their share values this year.
Despite the concerns, some analysts argue that the stock market’s reactions are exaggerated and overly cautious.
Thomas McGarrity, head of equities at RBC Wealth Management, maintains that certain professional information and data providers with proprietary data are well-positioned to incorporate generative AI into their offerings.
Others, like Andrea Scauri, portfolio manager at Lemanik, are more apprehensive, suggesting the rapid adoption of cheaper AI solutions could hinder growth.
As investors continue to navigate the choppy waters of AI integration, the focus remains on thorough research and strategic investing.
Amundi’s small and midcaps portfolio manager, Cristina Matti, underscores that investing indiscriminately is not an option for those seeking exposure to AI. “It’s essential to do your homework,” she emphasizes.
As AI continues to evolve, the question for investors is not only who will lead the charge, but also how to manage the risks and rewards that this transformative technology brings.
