The stock market is increasingly volatile. And one reason for this is AI. Anthropic releases some new features and software stocks plunge; a rumor circulates about a breakthrough in reasoning and chip makers surge overnight. Every earnings call becomes a referendum on whether a company is ‘AI-ready’ or about to be disrupted.
In fact, as the graph shows us, plenty of sectors are in the firing line.
Investors are trying to price in a technology whose trajectory nobody can confidently predict — and that uncertainty cuts both ways. One week, AI is going to automate everything and make half the workforce redundant; the next, it’s overhyped and the bubble is about to burst.
One place I’ve hidden from AI disruption, ironically, is AI hardware. One thing seems clear: it doesn’t matter who wins the model race — Anthropic, OpenAI, Google, or some startup nobody’s heard of yet — they all need chips.
So, where else can investors hide? Here are some ideas (not an exhaustive list).
Energy is boring in the best possible way. It’s a very physical thing and software breakthroughs are unlikely to have any impact. AI might optimise grid management or improve drilling efficiency at the margins, but it can’t replace the physical infrastructure that powers civilisation.
Importantly, demand for electricity is actually rising because of AI, not falling. And unlike software, you can’t download a power plant. The commodity is the moat.
This could mean anyone from Shell to Rolls-Royce, with its modular nuclear reactor programme, or even Greatcoat UK Wind.
The same logic, different aisle. People need toothpaste, cereal, and toilet paper regardless of what Jensen Huang announces. Consumer staples companies can avoid disruption by a chatbot — their moat is shelf space, brand loyalty, and distribution. AI might shave their costs. It won’t remove their customers.
The only issue here is that consumer staples don’t always generate big returns. Unilever and Diageo will be interesting prospects for some. I’ve invested in Fresh Del Monte. The stock is performing well.
Marketplaces are a sector I cover a lot. Unfortunately, the threat of AI has put them under immense pressure. Rightmove and Auto Trader (LSE:AUTO) are trading at multiples that were simply unheard of in recent years.
Investors worry that AI assistants and super apps will be able to bypass these marketplaces. In theory, they can take results straight from dealer websites.
The issue is… this costs a lot of money. AI isn’t free and I just can’t imagine a world where asking AI to find and present vehicles to consumers will be as cheap as the simple cloud retrieval that powers these sites today.