This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
What does it mean to be an industry that’s AI-resistant? In this hair-trigger market, hyperreactive to any inkling of AI disruption, that concept is quickly becoming obsolete, just as quickly as investors are finding new tickers to run away from.
That’s the first insight from a disorienting week, where nothing felt safe and the upside of AI hype abruptly transformed into the downside of sector displacement.
Central to the fears of AI leading to an extinction-level event for much of the business world is the idea that new tools won’t uniformly lift corporate America.
Sure, a rising tide lifts all boats. But generative AI compares more closely to a violent storm, ripping through whatever enterprise software, logistics operation, or accounting company stands in its way.
It might be true that an economy transformed by AI developments won’t become a winner-take-all situation. There can be multiple winners. But, at least going by these early stock market tremors, there could be many, many losers.
Depending on how tweaked out your algorithm is, whether you’ve recently liked and engaged with AI doomerism content or posts that welcome the inevitability of super-competent AI agents, you might be inclined to believe that recent financial jitters are reasonable.
Perhaps, through your own experience with AI tools, you suspect this is all an overreaction. Markets are still trying to suss out which interpretation is the more useful one.
The first conclusion is an unknown, and the second is a plain truth: Investors are incredibly sensitive.
That’s an evolution of broad sentiment, which used to absorb any blow or swat away any unflattering tidbit that appeared to challenge the AI trade. Now, even a little-known karaoke company-turned-AI-logistics-firm can trigger a cascade of selling, sending a host of AI-vulnerable names spiraling before most people are even aware of what’s happened.
As AI advancements accelerate, and each new model unveiling shows off even more of what the technology can do, investors are forced to reckon with how vulnerable legacy businesses might be.
As DataTrek’s Nick Colas noted in a recent note, AI’s multipurpose character makes it near-impossible to predict.
“Investors are uniquely attuned to disruptive innovation’s impact on markets/returns but are clearly struggling to anticipate AI’s ‘punchline,'” Colas wrote. We know the surprise is coming, but can’t quite pinpoint when and how. The recent memories of what Napster and Craigslist did for music and newspapers remains top of mind, Colas added.