The rapid adoption of generative artificial intelligence has boosted markets this year, but after the initial euphoria, investors are waking up to the possible 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 portfolio managers' microscopes to assess the potential for AI disruption.
The overall impact for corporate profitability is seen as hugely positive. Yet beyond Nvidia and other obvious winners in the chip sector, analysts warn there might also be losers across Europe and the US.
Consultants McKinsey says generative AI could add $7.3 trillion in value to the world economy each year and believes half of today's work activities could be automated between 2030 and 2060.
That, however, means corporates also face big challenges, like redundancies and rethinking their business models, if they want to fully realise AI's potential.
“It's not a given that AI will only have a positive impact. There could be a deflationary effect,” said Gilles Guibout, who helps manage over 820 billion euros ($900.44 billion) as head of European equities at AXA Investment Managers in Paris.
In some cases, clients could negotiate price cuts, he said, while staff-light newcomers could erode existing players' market share while they are busy redesigning their processes.
That might reduce sales growth and cause share price underperformance, especially for companies that face strong competition or where growth depends on headcount.
“Take IT 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,” said Mr Guibout.
The latest Bank of America survey in June showed 29 per cent of global investors don't expect AI to increase profits or jobs. That compares to 40 per cent that do expect a boost.
Concerns about AI have already manifested across markets.
Shares in companies like French outsourcing firm Teleperformance and US-based Taskus, which manage call centres and other services seen as vulnerable to being replaced by bots, have both lost around 30 per cent this year.
In education, UK's Pearson slumped 15 per cent one day in May after US peer Chegg, down 62 per cent this year, said significant student interest for the Microsoft-backed ChatGPT bot was hitting customer growth.
A few days later, Pearson held a call to explain its AI strategy, a sign of growing interest among investors to go deeper into how corporates are dealing with the transition.
Teleperformance, which employs 410,000 staff in 170 countries, held its AI investor day last Wednesday.
Some analysts say price falls have been excessive in certain cases, exaggerating the concerns over earnings growth.
“There's a lot of focus on the risks that generative AI can bring. This has ultimately become a bit overdone,” said Thomas McGarrity, head of equities at RBC Wealth Management.
He sounded confident over the capacity of some professional information and data providers, which own proprietary data, to integrate generative AI into their products.
Others, meanwhile, remain cautious, saying the fast adoption of cheaper AI-powered offerings could slow growth as soon as order backlogs of more conventional services are fulfilled.
Andrea Scauri, portfolio manager at Lemanik, said uncertainty over AI has deterred him from investing in some IT services stocks, despite valuations looking attractive.
On the other hand, Mr Scauri said he sees larger players like Accenture as better equipped to navigate the transition and deploy necessary capex.
Accenture unveiled a $3-billion investment plan to power its AI efforts this month, three months after announcing 19,000 layoffs, or about 2.5 per cent of its workforce.
Its shares have risen 19 per cent this year and French peer Capgemini is up 13 per cent. Firms such as Relx which handle regulated information, are also seen as less exposed to potential AI headwinds.
Cristina Matti, small and midcaps portfolio manager at Amundi, said indiscriminate investing was not an option for investors seeking AI exposure.
“Do not buy just for the sake of gaining exposure. It’s important to do your homework,” she said.
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UAE currency: the story behind the money in your pockets
If you go
- The nearest international airport to the start of the Chuysky Trakt is in Novosibirsk. Emirates (www.emirates.com) offer codeshare flights with S7 Airlines (www.s7.ru) via Moscow for US$5,300 (Dh19,467) return including taxes. Cheaper flights are available on Flydubai and Air Astana or Aeroflot combination, flying via Astana in Kazakhstan or Moscow. Economy class tickets are available for US$650 (Dh2,400).
- The Double Tree by Hilton in Novosibirsk ( 7 383 2230100,) has double rooms from US$60 (Dh220). You can rent cabins at camp grounds or rooms in guesthouses in the towns for around US$25 (Dh90).
- The transport Minibuses run along the Chuysky Trakt but if you want to stop for sightseeing, hire a taxi from Gorno-Altaisk for about US$100 (Dh360) a day. Take a Russian phrasebook or download a translation app. Tour companies such as Altair-Tour ( 7 383 2125115 ) offer hiking and adventure packages.
Racecard
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Racecard
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Specs
Engine: 51.5kW electric motor
Range: 400km
Power: 134bhp
Torque: 175Nm
Price: From Dh98,800
Available: Now
Killing of Qassem Suleimani
The specs
Engine: 8.0-litre, quad-turbo 16-cylinder
Transmission: 7-speed auto
0-100kmh 2.3 seconds
0-200kmh 5.5 seconds
0-300kmh 11.6 seconds
Power: 1500hp
Torque: 1600Nm
Price: Dh13,400,000
On sale: now
Results
5pm: Warsan Lake – Maiden (PA) Dh80,000 (Turf) 2,200m; Winner: Dhaw Al Reef, Sam Hitchcott (jockey), Abdallah Al Hammadi (trainer)
5.30pm: Al Quadra Lake – Maiden (PA) Dh80,000 (T) 1,600m; Winner: Mrouwah Al Gharbia, Sando Paiva, Abubakar Daud
6pm: Hatta Lake – Handicap (PA) Dh80,000 (T) 1,600m; Winner: AF Yatroq, George Buckell, Ernst Oertel
6.30pm: Wathba Stallions Cup – Handicap (PA) Dh70,000 (T) 1,600m; Winner: Ashton Tourettes, Adries de Vries, Ibrahim Aseel
7pm: Abu Dhabi Championship – Listed (PA) Dh180,000 (T) 1,600m; Winner: Bahar Muscat, Antonio Fresu, Ibrahim Al Hadhrami
7.30pm: Zakher Lake – Rated Conditions (TB) Dh80,000 (T) 1,400m; Winner: Alfareeq, Dane O’Neill, Musabah Al Muhairi.
Getting there
The flights
Emirates and Etihad fly to Johannesburg or Cape Town daily. Flights cost from about Dh3,325, with a flying time of 8hours and 15 minutes. From there, fly South African Airlines or Air Namibia to Namibia’s Windhoek Hosea Kutako International Airport, for about Dh850. Flying time is 2 hours.
The stay
Wilderness Little Kulala offers stays from £460 (Dh2,135) per person, per night. It is one of seven Wilderness Safari lodges in Namibia; www.wilderness-safaris.com.
Skeleton Coast Safaris’ four-day adventure involves joining a very small group in a private plane, flying to some of the remotest areas in the world, with each night spent at a different camp. It costs from US$8,335.30 (Dh30,611); www.skeletoncoastsafaris.com
The specs
Price: From Dh529,000
Engine: 5-litre V8
Transmission: Eight-speed auto
Power: 520hp
Torque: 625Nm
Fuel economy, combined: 12.8L/100km
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KILLING OF QASSEM SULEIMANI