The market is hunting for potential losers from AI. It may have got ahead of itself.
- Software groups, financial and legal publishers, wealth managers, financial groups, and even real estate have been badged ‘AI losers’
- Share price have sold down significantly as investors anticipate disruption from AI
- No-one knows the scope and reach of AI, so almost every company in the world could theoretically be disrupted by it
It has been a tough few weeks for those companies deemed ‘AI losers’ by the market. First it was software groups, then financial and legal publishers. It has subsequently moved on to wealth managers, to financial groups, and even to real estate. Is there any substance to any of these fears? Or should investors view this as a moment for selective stock picking?
Certainly, the premise on which many of these falls are based appears flimsy. On real estate, for example, the assumption appears to be that AI will hurt the real estate sector because unemployment will rise and there will be less need for commercial property. This is a plausible scenario, but there is no evidence for it.
Equally, for wealth managers, the panic was caused by a US-based fintech, Altruist, which launched a tool to help financial advisers personalise clients’ investment strategies. There was no indication as to whether it would pass stringent UK regulatory requirements on advice, or whether its pricing structure made it viable for adoption by UK advice groups. Nevertheless, shares in St James Place, Quilter and Aberdeen all lost ground in the aftermath of its launch.
RELX has been another significant loser, with its share price almost half of its level a year ago. Once seen as a significant beneficiary of AI, investors have changed their mind on the company’s shares. In particular, they are worried about a new legal plug-in launched as part of Anthropic’s Claude AI tool. However, the plug-in specifically doesn’t offer legal advice, and it seems unlikely that it will be able to replicate RELX’s 160bn document database.
The problem is that companies are trying to prove a negative. While there has been no evidence of AI disruption in their operational performance so far, it is tough to prove they won’t be disrupted by AI in future. After all, no-one knows the scope and reach of AI, so almost every company in the world could theoretically be disrupted by it. It appears that markets are going through a process of panicking about each sector in turn before – hopefully - coming to a more rational appraisal of the risks.
These share price falls appear to be based on a shallow assessment of the potential risks of AI. Many of the software groups are embedded in the critical functions of their clients – regulatory reporting, risk assessment – and it is not at all clear that companies would be keen to replace them with AI, even if AI may be able to do the job. There are questions around cost, efficiency and risk. Ultimately, the AI loser panic may be overdone.
