After the initial enthusiasm, investors are waking up to the risks, especially the need to be exceedingly discriminating in stock-picking.
Portfolio managers are examining I.T. services, consulting, media, information, and education for A.I. disruption.
Corporate profitability benefits greatly. Analysts fear Europe and the U.S. may lose out to Nvidia (NVDA.O) and other chip champions.
McKinsey estimates that generative A.I. could add $7.3 trillion to the global economy annually and automate half of today’s jobs by 2060. However, corporations must make redundancies and rethink their business models to realize A.I.’s potential truly.
“A.I. won’t always be good. As head of European stocks at AXA Investment Managers in Paris, Gilles Guibout warned about deflation.
He said clients might negotiate price discounts, and staff-light startups may steal market share as established businesses restructure their procedures.
Sales growth and share price underperformance may decrease for companies with intense competition or growth dependent on headcount.
“Take I.T. services: if one hundred people are no longer needed for coding, but only half or a third of that, customers will be asking for lower prices,” Guibout added.
In June’s Bank of America survey, 29% of global investors didn’t expect A.I. to boost profits or jobs. Only 40% predict a boost. Markets have A.I. concerns. Teleperformance (TEPRF.PA) and Taskus (TASK.O), which handle call centers and other businesses vulnerable to bots, have lost 30% this year.
After U.S. peer Chegg (CHGG.N), down 62% this year, indicated student interest in the Microsoft-backed (MSFT.O) ChatGPT bot was hurting customer growth, Pearson (PSON.L) fell 15% one day in May.
Pearson conducted a call to explain its A.I. plan a few days later, indicating investor interest in corporate transition strategies.
Teleperformance held its A.I. investor day on Wednesday. Some analysts argue large price decreases have exaggerated profit growth issues.
“Generative A.I. hazards are emphasized. Thomas McGarrity, RBC Wealth Management’s equity head, says this is overdone.
He was sure that professional information and data suppliers with proprietary data might integrate generative A.I. into their solutions.
Others are wary, arguing the early adoption of cheaper AI-powered offerings could restrict growth once order backlogs of more conventional services are satisfied. Despite appealing valuations, Lemanik fund manager Andrea Scauri said A.I. uncertainty had kept him from investing in several I.T. services equities.
However, Scauri believes larger firms like Accenture can handle the transformation and commit capex. Three months after announcing 19,000 layoffs, or 2.5% of its workforce, Accenture announced a $3-billion A.I. investment plan.
Its shares rose 19% this year, while French peer Capgemini (CAPP.PA) rose 13%. Regulated information firms like Relx (REL.L) are less vulnerable to A.I. headwinds.
Amundi small and midcaps fund manager Cristina Matti advised A.I. investors against indiscriminate investing. Avoid buying for exposure. “Homework is important,” she remarked.
