New Delhi: The rapid adoption of generic artificial intelligence has fueled the market this year, but after initial euphoria, investors are waking up to the potential risks, including the need to be highly selective in stock-picking. Businesses ranging from IT services and consulting to media, information and education are now under the microscope of portfolio managers assessing the potential for AI disruption.
The overall impact on corporate profitability is seen to be extremely positive. Yet beyond Nvidia (NVDA.O) and other clear winners in the chip sector, analysts warn that losses could be brewing across Europe and the United States as well.
McKinsey says that generative AI could add $7.3 trillion in value to the world economy every year and believes that half of today’s work activities could be automated between 2030 and 2060. However, this means corporates also face bigger challenges, such as redundancies and rethinking their business models. If they want to fully realize the potential of AI.
Gilles Guibaut, who helps manage more than 820 billion euros ($900.44 billion) as head of European equities at AXA Investment Managers in Paris, said, “It is not certain that AI will have only positive effects. There can be deflationary effects.” could.”
In some cases, he said, customers may negotiate price cuts, while staff-less entrants may eat into existing players’ market share while they are busy redesigning their processes. This can reduce sales growth and cause the share price to underperform, especially for companies that face stiff competition or where growth depends on the number of employees.
Guibout said, “Take IT services: if now not a hundred people are needed for coding, but only half or a third of the people are needed, customers will demand lower prices.” The latest Bank of America survey in June showed that 29% of global investors do not expect AI to increase profits or jobs. This is compared to 40% who expect an increase.
AI is not always “good”
Concerns about AI have already manifested in all markets. Shares of companies such as French outsourcing firm Teleperformance (TEPRF.PA) and US-based Taskus (TASK.O), which manages call centers and other services, are considered vulnerable to being replaced by bots, both in There has been a decline of about 30% this year.
In education, UK’s Pearson (PSON.L) plunged 15% in one day in May, while US peer Chegg (CHGG.N) has plunged 62% this year, Microsoft-backed (MSFT.O) There was significant student interest for the ChatGPT bot. Influencing customer growth.
A few days later, Pearson held a call to explain its AI strategy, indicating growing interest among investors in how corporates are tackling this change. Teleperformance, which employs 410,000 employees in 170 countries, held its AI Investor Day on Wednesday.
Some analysts say the decline in prices has been excessive in some cases, raising concerns over earnings growth. “There’s been a lot of focus on the risks that generative AI can bring. It’s ultimately turned out to be a bit much,” said Thomas McGarity, head of equities at RBC Wealth Management.
He expressed confidence in the ability of some professional information and data providers who have proprietary data to integrate generic AI into their products. Meanwhile, others remain cautious, saying that rapid adoption of cheaper AI-powered offerings could slow growth as order backlogs for more traditional services fill up.
Andrea Scouri, portfolio manager at Lemnik, said the uncertainty over AI has kept him from investing in some IT services stocks even though valuations look attractive. Scouri, on the other hand, said he sees larger players like Accenture as better equipped to deal with the transition and deploy the necessary capital spending.
Three months after announcing layoffs of 19,000, or about 2.5% of its workforce, Accenture this month unveiled a $3 billion investment plan to power its AI efforts. Its shares have gained 19% this year and French counterpart Capgemini (CAPP.PA) is up 13%. Firms like Relx (REL.L) that handle regulated information are also seen as less vulnerable to potential AI disruptions.
Christina Matti, small and midcap portfolio manager at Amundi, said indiscriminate investing is not an option for investors seeking AI exposure. “Don’t buy just to get exposure. It’s important to do your homework,” he added.