High-growth technology stocks still dominate the investment landscape, fueled by the promise of AI. But recent signs of a broadening market are revealing that more industries beyond just tech are positioned to benefit. We think large-cap value stocks are well-poised for this shift, especially since AI can be both a disruptive and driving force in today’s dynamic market.
The AI revolution is redefining entire market segments. Greater uncertainty over which companies will win or lose the AI race is adding a layer of investment risk, as investors struggle to predict the long-term livelihood of fast-growth companies leading the way.
AI Is Shaking Up Businesses
For instance, AI concerns recently forced a rapid reset of software stocks, with the market reacting indiscriminately to the technology’s disruptive potential.
Rapid improvements in AI are also raising concerns about the long-term earnings of companies that rely on white-collar labor or have few physical assets. Investors are increasingly worried that AI could disrupt established business models across industries such as finance, online travel and clinical research services.
AI potentially could significantly change the job market, with ripple effects across many businesses. For instance, companies that depend on large office workforces—such as office real estate investment trusts (REITs), already struggling with lower post COVID-19 occupancy—may face added pressure if AI reduces demand for white-collar jobs.
McKinsey & Company estimates AI will automate 30% of all hours worked in the next four years. But what will this mean for jobs? AI was cited for sweeping layoffs at hyperscaler Meta Platforms and apparel icon Nike, perhaps the early global wave among 92 million displaced workers projected by the World Economic Forum by 2030.
How Value Can Sidestep AI Risks
Value stocks might be better insulated from some AI threats, in our view. Large-cap value companies especially tend to comprise “old economy” and cyclical industries with foundations more in the physical world than the cloud. As a result, value strategies tend to be less exposed to potential AI disruptors compared to growth approaches, and far less weighted in vulnerable industries like software, office REITS and entertainment in particular (Display). Value-oriented firms also stretch across a particularly broad range of industries, which we believe adds even more insulation from AI’s twists and turns.
