Investors are exhibiting a marked reluctance to capitalize on recent market dips, instead opting to remain on the sidelines as the potential economic disruption caused by advances in artificial intelligence becomes increasingly apparent. A wave of selling, targeting companies perceived as vulnerable to AI-driven disruption, has gripped global stock markets, leaving investors hesitant to jump back in despite lowered valuations.
The recent launch of sophisticated AI tools has triggered concerns about the future of traditional business models across a range of sectors, including trucking, real estate, wealth management, and advertising. The resulting volatility has underscored a pervasive sense of unease among portfolio managers regarding the potential consequences of this technological shift.
Despite reassurances from companies that AI will ultimately enhance their operations and that the recent share price declines represent an overreaction, many investors are resisting the temptation to “buy the dip.” Robert Schramm-Fuchs, portfolio manager at Janus Henderson, articulated this sentiment, stating, “The world is changing very, very quickly… we wouldn’t have the conviction to try and bottom-fish.”
Schramm-Fuchs emphasized the rapidly evolving nature of AI, adding, “The AI models today are substantially more powerful than the ones from six or 12 months ago. What seems protected as a business model today might not be [in the future].” This uncertainty, he argues, makes it exceedingly difficult to confidently invest in companies facing potential disruption.
The Nasdaq Composite experienced a weekly decline of 2.1 percent, while the broader S&P 500 shed 1.4 percent. However, these index-level declines mask more significant volatility within specific sectors. Trucking giant CH Robinson saw its share price fall by 12 percent, and investment firm Charles Schwab declined by 11 percent. Commercial real estate firm CBRE dropped 16 percent, and insurance broker Gallagher declined 13 percent over the same period.
While these declines have resulted in lower valuations, a sustained recovery has yet to materialize. Investors appear to be prioritizing risk management over capitalizing on potential bargains.
Valérie Noël, head of trading at Syz Bank, described the market’s current state as characterized by “hesitation,” noting a lack of willingness to aggressively defend falling prices. She stated that the market is “prioritising uncertainty management over dip-buying.”
Custodial markets data from State Street confirms this trend, revealing that institutional investors are largely avoiding the software sector despite the recent sell-off. Marija Veitmane, head of equities strategy at State Street, observed that funds are instead flowing towards the hardware segment of the technology sector.
Goldman Sachs recently introduced a pair trade strategy designed to capitalize on the AI-driven market divergence. The strategy involves taking long positions in software companies that are less susceptible to AI disruption – those with businesses requiring physical execution, regulatory protection, or human oversight – and short positions in companies whose workflows are more vulnerable to automation. The bank’s equity strategists anticipate that the former will outperform the latter in the coming months.
The logistics sector experienced particularly erratic trading on , triggered by an unexpected announcement from Algorhythm Holdings, a Florida-based company with a history as a karaoke machine manufacturer. The company released a white paper claiming its AI platform could increase freight volumes by up to 400 percent without a corresponding increase in personnel. This announcement ignited fears that new technology could significantly erode the market value of established logistics companies, leading to declines of approximately 15 percent for both CH Robinson and Landstar in a single day.
Similar volatility affected wealth management firms earlier in the week, following the release of new AI-powered tax planning tools by Altruist, which sent shares of FTSE 100 wealth manager St James’s Place down 13 percent. Insurance companies also experienced declines in response to a model developed by AI start-up Insurify.
Despite the widespread sell-off, some fund managers believe that the market’s reaction has been excessive. Alex Wright, a portfolio manager at Fidelity International, noted that he had identified “bargains” in the recent market downturn, arguing that “a lot of stocks are not being priced appropriately.”
However, others remain cautious. Charles Lemonides, founder of hedge fund ValueWorks, argued that the software sell-off is “totally logical,” given that valuations were previously “absurd.” He believes that companies trading at 50 times earnings have merely adjusted to a more realistic 30 times earnings multiple as investors anticipate the impact of AI disruption.
Dan Hanbury, a portfolio manager at Ninety One, acknowledged that many “great companies” have been caught up in the recent market turbulence. However, he emphasized the real and potentially far-reaching nature of the disruption, stating, “AI is going to get a lot more powerful — how can I guarantee that the moats around these companies are still going to be here? I’m not trying to trade that bounce.”
