AI Scare Trade Forces Wall Street to Rethink Investment Strategy as Disruption Fears Mount

Wall Street's Quant Playbook Is Upended as AI Reorders Market

The week that AI upended Wall Street's investing playbook didn't begin with an earnings miss or a Federal Reserve surprise. It began with a thought experiment on Substack. A dystopian scenario published by little-known research firm Citrini sent shockwaves through markets, imagining a near-future where AI wipes out white-collar jobs so fast that the economy can't absorb the blow. International Business Machines Corp. plunged the most in 25 years. Software stocks, already battered, hit fresh lows. Nassim Taleb warned of bankruptcies ahead. By Friday, the jitters had spread -- with private credit worries, a hotter-than-expected inflation print, and Middle East fears pushing the S&P 500 to its worst month since March. But the disruption extends well beyond a handful of obvious blowups. As AI rapidly redraws the line between winners and losers across industries, it's reshaping something more fundamental: the very toolkit that professional money managers use to build portfolios -- challenging long-held assumptions about which stocks are safe, which are cheap, and which are worth chasing. Even the quantitative building blocks that underpin how trillions of dollars get allocated are being rethought. Quality -- Wall Street shorthand for companies with high profitability and stable earnings, the stocks that are supposed to let you sleep at night -- is getting punished. Think of the Microsofts and AppLovins of the world, the client-management platforms and business-solution providers with fat margins built on the sheer complexity of the work they automated. High-margin companies whose rich valuations were once justified by wide competitive moats are being shunned -- because those moats are precisely what AI is coming after. Value, left for dead for years amid fears of buying into failing businesses, is suddenly back. And momentum -- the strategy of riding winners -- is flashing internal contradictions rarely seen before. The concept of safety itself is getting turned upside down. With confidence in long-term cash flows waning amid AI disruption, investors are rediscovering stocks with here-and-now fundamentals and low price tags -- companies like AngloGold Ashanti, Coca-Cola Co. and Acadia Healthcare Co. AI "is altering the behavior of traditional equity factors that many investors rely upon for portfolio construction," said Nick Niziolek, co-chief investment officer at Calamos Investments. It's "causing the composition and character of factor baskets to shift in real time." For decades, investors have been willing to pay up for future earnings and wait years for companies to deliver. Think software developers, drugmakers and social media companies -- businesses built on the knowledge economy that could scale effortlessly. Now, the landscape appears to be shifting. With AI clobbering a new industry every other day, nobody wants to bet on cash flows that may not exist in five years. What's certain is that AI is here to stay, and the companies that stand to benefit are those providing the foundation of the infrastructure -- utilities, chipmakers, and manufacturers of grids and pipelines. Many of these stocks have "heavy assets, low obsolescence," or HALOBloomberg Terminal, as Goldman Sachs strategists put it. Long viewed as boring or vulnerable to economic swings, these stocks are the new hot trade. Get the Markets Daily newsletter. Get the Markets Daily newsletter. Get the Markets Daily newsletter. What's happening in stocks, bonds, currencies and commodities right now. What's happening in stocks, bonds, currencies and commodities right now. What's happening in stocks, bonds, currencies and commodities right now. Bloomberg may send me offers and promotions. Plus Signed UpPlus Sign UpPlus Sign Up By submitting my information, I agree to the Privacy Policy and Terms of Service. "AI as a technology just requires a lot broader participation in terms of making it happen, rather than just some code that you can replicate and sell at almost a 100% incremental margin," said Travis Prentice, chief investment officer at Informed Momentum Company. "It's rewarding more physical capital-intensive industries, more cyclical industries, which tend to have a higher weight in value type strategies." Read MoreTaleb, Citrini Fuel AI Scare Trade as IBM Drops Most in 25 YearsCitrini's Dystopian AI Vision Draws Global Investor CriticismBest Month in a Year for Bonds Sends 10-Year Yield Below 4% Quality stocks in the Russell 1000 slipped in February, trailing their value counterparts by more than 5 percentage points. The underperformance, the worst since 2021, marks a reversal from the last three years, when quality took the lead. Hedge funds that had piled into quality stocks may have exacerbated the factor's latest downdraft as they reshuffle their holdings, according to Barclays Plc's global head of equities tactical strategies Alexander Altmann. "It's a combination of both dynamics that is creating such a confusing time for many quant strategies: disruptive technology meets years of crowded positioning," he said. "It's a potent combination." To be sure, factor regimes have been tested time and time again, only for traditional relationships to reassert themselves. If the AI trend proves narrower than feared, or if the economy slows enough to revive the flight-to-quality trade, the old playbook could snap back fast. For the broad market, risk appetites have lately dulled due to growing geopolitical angst and software's travails. The S&P 500 posted its worst month since last year's tariffs-induced rout, while high-yield credit retreated. Haven assets like Treasuries and gold rallied. Another thing breaking in the AI era is within the momentum factor. For the last decade, the most reliable trend in equities has been the propensity of rising shares to rise even faster. And it made sense: these were the same stocks analysts were always upgrading, given the power of their earnings engines. Not so anymore. The stocks climbing fastest these days have little or no correlation to improving fundamental sentiment as proxied by analyst earnings revisions, according to an analysis by Man Group. Now the only thing you need to go up is some connection to the AI tailwind, however loose. "You think it's a momentum portfolio, but at this point in time, it's an AI portfolio," said Ziang Fang, a senior portfolio manager at Man Group. "It's really worth considering where that exposure is coming from, intended or not, and then what that exposure means from a risk perspective." With AI clouding the outlook for many firms, investors are reluctant to wait for clarity. Cold cash, earned as quickly as possible, is in demand like rarely before. Exchange-traded funds tracking companies with generous dividends and buybacks have attracted $7 billion of fresh money this month, trailing only value-anchored funds among so-called smart-beta ETFs, data compiled by Bloomberg show. A basket of stocks focusing on higher cash returns has gained about 7% this quarter, according to 22V Research. AI "is an idiosyncratic force that is driving the change in factor relationships," said Dennis DeBusschere, co-founder at 22V. "We should expect the breakdown in typical factor relationship to continue over the coming year."

Investors beware: These stocks are the most at risk from AI disruption

Jefferies analysts just released a basket of major companies at risk of artificial intelligence disruption, providing some guideposts for investors at a fragile time for U.S. stocks. Fears have spread in the market that rapidly developing artificial intelligence models will soon disrupt an array of traditional business models, spurring a sell-off at various times this year in software-as-a-service providers, insurance services, logistics and real estate stocks. The iShares Expanded Tech-Software Sector ETF (IGV) is down more than 23% this year, entering a bear market. The selling has sometimes been indiscriminate, many investors say, but the weakness continues to plague several big name companies, such as Robinhood and ServiceNow . And concern that the selling stirred by AI will tip over into other industries remains high, keeping investors alert to potential risks ahead. "While we have seen a recent rebound, the sector remains exposed to further AI developments," Jefferies head of quantitative strategy Desh Peramunetilleke wrote in a Friday note to clients. "The software sector is trading at 21x PE, the same as the market, and for somewhat similar EPS growth (16% EPS CAGR). However, given future uncertainties, the sector could even trade at a discount." To find stocks with significant AI-related risks, Jefferies created an "AI risk" basket using a combination of return profiles and an AI-assisted search algorithm. What the investment bank found was 150 stocks with a market cap above $1 billion that face potential AI risks such as asset repricing, demand substitution, labor substitution, moat decay and pricing pressure. In order to find vulnerable stocks, Jefferies searched for sub-industries that could be hurt by various threats of disruption. The firm then combined those findings with stock-level returns and ran them through a series of pre-trained prompts to find stock-specific, AI risk. Take a look at a selection of the stocks below: Unity Software is at risk that AI content will lower switching costs, allowing developers to more easily use AI to recreate and migrate assets across platforms, weakening the moat-like appeal of Unity's ecosystem, Jefferies found. Unity has plunged 59% so far in 2026, among the worst performances in Jefferies' basket. The videogame engine maker slumped 37% in February after earlier in the month giving disappointing first-quarter revenue guidance. AI disruption fears have only exacerbated investor reaction. Datadog , MongoDB and ServiceNow are other software companies hit by AI disruption fears. Jefferies analysts, led by Peramunetilleke, found that MongoDB's moat could get disrupted if AI coding tools weaken database selection, leaving developers less tied to a single database architecture as switching costs decline. Duolingo is also at risk. Shares of the language learning website have plummeted 42% so far this year after first-quarter results and 2026 bookings expectations fell short and AI fears spread. Jefferies' screen placed Duolingo into the risk category of "replicability," particularly because of the risk that AI tutors could commoditize language learning. Other stocks in Jefferies' basket of stocks at risk included Accenture , Robinhood Markets and DoorDash . Robinhood, down 33% this year, could be hurt if AI agents disintermediate retail trading, the Wall Street firm said.

AI Fears Set to Raise Cost of Private Loan for Insurance Broker

Private credit lenders to a German insurance broker are pushing for a higher margin on a €1.2 billion ($1.4 billion) loan due to fears of the risks AI poses to the sector. Discussions for the prospective refinancing of Global Gruppe's €1 billion ($1.2 billion) loanBloomberg Terminal involve a margin in the range of 500 to 525 basis points over Euribor, at least 50 basis points wider than levels contemplated during an abandoned sale process just a few months ago, the people said, asking not to be identified discussing confidential information. The higher pricing comes after shares of insurance brokers have fallen sharply this month, following the debut of a new AI tool by Insurify that heightened concerns about technological disruption across the sector. A representative for Global Gruppe declined to comment. Those anxieties have also reached the private credit market, where executives have fielded investor questions about exposure to the industry on recent earnings calls. Private credit funds had been lining up financing to support a possible purchase of Global Gruppe. However, the sale process was paused when the company failed to attract interest at its targeted valuation, the people said. Several buyout firms had been looking at acquiring the firm. Anxiety has also deepened around private credit's exposure to the broader software sector, after startup Anthropic PBC unveiled new AI tools seen as potentially disruptive to industries ranging from financial research to real estate services. Over the past three years, investors have sought exposure to all things artificial intelligence, including high-flying tech stocks behind some of the leading AI technology. Recently, though, the market's focus has shifted, as predictions that AI will be so successful that it might supplant the need for many types of businesses and workers has driven some stocks down sharply. Wall Street is calling it the "AI scare trade." The moniker first popped up among market participants unnerved by rolling selloffs in industries such as trucking that previously hadn't been considered related to AI. The term then started making its way into Wall Street's lexicon in early February, said Jade Rahmani, an analyst with Keefe Bruyette & Woods Inc., who was among the first to publish a research note describing the AI scare trade. For the first time since the stocks rally started in 2023, investors' views on AI have shifted: Long viewed as a potential productivity booster, some now see the technology as a threat to entire industries. The change in perspective threatens to shift the direction of the market after three straight years of gains. What is the AI 'scare trade?' Wall Street traders have been so spooked by the disruptive potential of AI that all it took to spark a drop in the S&P 500 Index at the end of February was a gloomy research memo. The founder of Citrini Research, James van Geelen, published a "scenario analysis" of a world disrupted by AI, set in a dystopian version of 2028, when chatbot tools have hollowed out industries and pushed the US unemployment rate above 10%. Even he was surprised at the market's negative reaction. The scare trade in AI is essentially two fears wrapped up into one action -- sell all things AI-linked -- in a market that until recently had been trading at bubble-like valuations. The first fear is that firms like Microsoft Corp. and Amazon.com Inc., whose stock prices dropped after reporting earlier this year, are spending too much money on data centers and building out AI infrastructure. The second is that AI will severely disrupt entire industries because AI agents will be able to replace white collar workers, shrinking the workforce and, by extension, consumer spending. That fear has rolled from one industry group to another in recent weeks, sparking massive selloffs in sectors such as software development, even as the overall stock market has remained flat so far this year. Why is the scare trade gaining traction now? Stock traders are finally catching up to the anxieties that have plagued some chief executives of S&P 500 member companies. At the end of last year, 83% of companies in the S&P 500 listed AI as a "material risk" to their business, up from 72% in the third quarter of 2025 and just 12% in 2023, according to data compiled by the Conference Board and shared with Bloomberg. "I think [corporate executives] were perhaps the first to confront it because they were obviously deploying the technology directly and facing some of the big consequences," said Andrew Jones, principal researcher at the Conference Board. He added that CEOs flagged AI as their No. 1 concern in a 2025 year-end Conference Board survey. In early 2026, the rollout of new AI products such as Anthropic PBC's Claude AI for legal services firms and Altruist's Hazel AI tool for tax planning awakened investors to the fast-emerging capabilities of AI and sent shares in legal firms and wealth management companies sliding. Which industries are most exposed and why? Even if most companies survive the AI transformation, their businesses might shrink, said Marta Norton, chief investment strategist at Empower. Some industries, including business software, professional services, cybersecurity, wealth management and real estate, are especially vulnerable. A closely followed fund of companies that sell software has plunged 17% so far this year, led by drops from the likes of Atlassian Corp., which is down 51%, and Unity Software Inc., down 56%. Is there actual data to support the scare? For the most part, investors are trading on the expectation that AI will eat away at future revenue streams rather than current ones. For example, shares of travel booking company Expedia Group Inc. have fallen 23% so far in 2026 even though it hasn't experienced a significant challenge from AI agents booking flights and hotels. Indeed, some of the worst-performing stocks in the S&P 500, including Intuit Inc., AppLovin Corp. and Workday Inc., have been beating Wall Street expectations for earnings and sales in recent quarters, as investors bet that AI will eventually curb their businesses. Are there companies benefiting from the scare? To avoid the AI fallout, Goldman Sachs analysts urged investors to shift their money into "tangible productive assets," in what has come to be called the "HALO" trade, for "heavy assets, low obsolescence." Those stocks would include businesses less vulnerable to being supplanted by AI, such as heavy industry firms operating pipelines, utilities, transportation infrastructure, factories and ports. A Goldman Sachs basket of such capital-intensive stocks has outperformed stocks with lighter assets by 35% since 2025. The other sector that appears to be benefiting is consumer staples, because demand for household products tends to remain stable even when other sectors of the economy are shaken.

Why the AI 'Scare Trade' Keeps Spooking Markets

Over the past three years, investors have sought exposure to all things artificial intelligence, including high-flying tech stocks behind some of the leading AI technology. Recently, though, the market's focus has shifted, as predictions that AI will be so successful that it might supplant the need for many types of businesses and workers has driven some stocks down sharply. Wall Street is calling it the "AI scare trade." The moniker first popped up among market participants unnerved by rolling selloffs in industries such as trucking that previously hadn't been considered related to AI. The term then started making its way into Wall Street's lexicon in early February, said Jade Rahmani, an analyst with Keefe Bruyette & Woods Inc., who was among the first to publish a research note describing the AI scare trade. For the first time since the stocks rally started in 2023, investors' views on AI have shifted: Long viewed as a potential productivity booster, some now see the technology as a threat to entire industries. The change in perspective threatens to shift the direction of the market after three straight years of gains. What is the AI 'scare trade?' Wall Street traders have been so spooked by the disruptive potential of AI that all it took to spark a drop in the S&P 500 Index at the end of February was a gloomy research memo. The founder of Citrini Research, James van Geelen, published a "scenario analysis" of a world disrupted by AI, set in a dystopian version of 2028, when chatbot tools have hollowed out industries and pushed the US unemployment rate above 10%. Even he was surprised at the market's negative reaction. The scare trade in AI is essentially two fears wrapped up into one action -- sell all things AI-linked -- in a market that until recently had been trading at bubble-like valuations. The first fear is that firms like Microsoft Corp. and Amazon.com Inc., whose stock prices dropped after reporting earlier this year, are spending too much money on data centers and building out AI infrastructure. The second is that AI will severely disrupt entire industries because AI agents will be able to replace white collar workers, shrinking the workforce and, by extension, consumer spending. That fear has rolled from one industry group to another in recent weeks, sparking massive selloffs in sectors such as software development, even as the overall stock market has remained flat so far this year. Why is the scare trade gaining traction now? Stock traders are finally catching up to the anxieties that have plagued some chief executives of S&P 500 member companies. At the end of last year, 83% of companies in the S&P 500 listed AI as a "material risk" to their business, up from 72% in the third quarter of 2025 and just 12% in 2023, according to data compiled by the Conference Board and shared with Bloomberg. "I think [corporate executives] were perhaps the first to confront it because they were obviously deploying the technology directly and facing some of the big consequences," said Andrew Jones, principal researcher at the Conference Board. He added that CEOs flagged AI as their No. 1 concern in a 2025 year-end Conference Board survey. In early 2026, the rollout of new AI products such as Anthropic PBC's Claude AI for legal services firms and Altruist's Hazel AI tool for tax planning awakened investors to the fast-emerging capabilities of AI and sent shares in legal firms and wealth management companies sliding. Which industries are most exposed and why? Even if most companies survive the AI transformation, their businesses might shrink, said Marta Norton, chief investment strategist at Empower. Some industries, including business software, professional services, cybersecurity, wealth management and real estate, are especially vulnerable. A closely followed fund of companies that sell software has plunged 17% so far this year, led by drops from the likes of Atlassian Corp., which is down 51%, and Unity Software Inc., down 56%. Is there actual data to support the scare? For the most part, investors are trading on the expectation that AI will eat away at future revenue streams rather than current ones. For example, shares of travel booking company Expedia Group Inc. have fallen 23% so far in 2026 even though it hasn't experienced a significant challenge from AI agents booking flights and hotels. Indeed, some of the worst-performing stocks in the S&P 500, including Intuit Inc., AppLovin Corp. and Workday Inc., have been beating Wall Street expectations for earnings and sales in recent quarters, as investors bet that AI will eventually curb their businesses. Are there companies benefiting from the scare? To avoid the AI fallout, Goldman Sachs analysts urged investors to shift their money into "tangible productive assets," in what has come to be called the "HALO" trade, for "heavy assets, low obsolescence." Those stocks would include businesses less vulnerable to being supplanted by AI, such as heavy industry firms operating pipelines, utilities, transportation infrastructure, factories and ports. A Goldman Sachs basket of such capital-intensive stocks has outperformed stocks with lighter assets by 35% since 2025. The other sector that appears to be benefiting is consumer staples, because demand for household products tends to remain stable even when other sectors of the economy are shaken.

"Anything but AI" is giving rise to the "Halo trade"

Why it matters: It's a counter to the AI scare trade, which has been on a bender this year, steamrolling entire industries based on the flimsiest of evidence that the technology is coming for them. Catch up quick: Software is Exhibit A, with the S&P Software Index down about 20% this month alone. * But similar freak-outs have happened to real estate, IT, cybersecurity and insurance. On Monday, IBM got hit, down 13% after Anthropic spelled out how Claude can modernize legacy code. * DoorDash, the food delivery company, fell 6.6% because of its appearance in a viral "thought exercise" that laid out a doomsday AI scenario. Where it stands: Enter Halo -- "heavy assets, low obsolescence." Coined this month by Josh Brown, CEO of Ritholtz Wealth Management, Halo describes stocks of businesses that are more AI proof. How it works: Investors are used to looking at the market through old paradigms: growth versus value or defensive versus cyclical. * "That's not what's going on now," Brown tells Axios. "Throw all that out." * The new metric: disruptable or not? Follow the money: His go-to example is Delta Air Lines versus Expedia. * Until this year their two stocks were linked to the overall travel sector. Now they've decoupled. (See chart.) * In danger of being replaced by a good AI chatbot, Expedia is down 6% from last year, and Delta is up 8.3%. Zoom in: There's also the practice of digging stuff out of the ground. The S&P Global Mining Index is up over 100% from last year. * Budweiser stock -- left for dead after its "woke" dustup -- is up 48% from last year. You can't drink generative intelligence. Reality check: It's a crude metric. Of course, each Halo stock has a more specific story to tell. Zoom out: Investment banks are on board. Goldman Sachs just launched a new index, SPXXAI, which lets you invest in the S&P 500 benchmark minus all things AI, Axios' Madison Mills reported last week. The big picture: For the past 15 years, investors have been happy to throw money at stocks with "asset-light" business models -- software companies without a lot of labor or infrastructure that reliably brought in a steady stream of recurring revenue through subscriptions. * "We reached a point where people were saying, 'what else would I want to invest in?'" Brown says. * That has totally flipped on its head. "That era just came to an end." Between the lines: Winners and losers will certainly emerge from the carnage, but at the moment, it's hard to see who's who. * Some of the stocks getting battered right now are probably absurdly cheap. Others are never coming back. * "We don't yet know which is which or what the timetable might be," Brown wrote earlier this month. Flashback: It's like when the dot-com bubble burst and investors sprinted away from tech stocks. Back then you couldn't tell which one was Pets.com and which one was Amazon. What to watch: There's no end in sight for the scare trade. There's no clear moment when we'll know if a company is AI-proof or not.

U.S. stocks are being battered by 'AI derangement syndrome' and CEOs are learning not to talk about it | Fortune

S&P 500 futures were down 0.32% this morning prior to the opening bell in New York, after the index fell 0.54% yesterday, suggesting that investors hate U.S. equities right now. The index is up 0.93% year-to-date, a feeble performance compared to foreign stocks. The U.K.'s FTSE 100 is up nearly 10% over the same period. The STOXX Europe 600 is up 6.53% and sits at an all-time high. Japan's Nikkei 225 is up nearly 14%. South Korea's KOSPI is up an astonishing 45%. Growth is everywhere, except America. Why? "AI derangement syndrome," according to an email sent by Yardeni Research to its clients. Investors have become so skittish of stocks linked to AI that it's dragging down the entire U.S. market. Exhibit A: Nvidia, the AI chipmaker that is the largest company on planet earth by market cap. Nvidia's performance as a business has been unambiguously excellent. Its Q4 2025 earnings call was another blowout, expectations-beating, record performance. But no good deed goes unpunished in the S&P 500, and Nvidia's stock fell 5.46% yesterday. It is down 0.86% year-to-date. "Out of 13 total quarterly reports, [Nvidia] has reported ten triple plays (beat EPS, beat sales, raised guidance). In its first six earnings reports following the release of ChatGPT, NVDA shares averaged a one-day gain of +10% on its earnings reaction day. Following its last seven reports, though, shares have averaged a decline of -3%," Bespoke Investment Group said. (Bespoke tracks a custom "AI Doom basket" of stocks, which gives you an idea of how negatively AI is viewed by traders right now.) AI-linked tech stocks are, in fact, dragging down the S&P as a whole. The equal-weight S&P 500 -- a notional index that ignores the market cap of each stock in favor of counting them all equally -- is up 6.7% year to date, suggesting that the U.S. market would be better off without the tech stocks that dominate it. The tech-heavy Nasdaq, by contrast, is down 1.56% for the year. "The main driver [of the market's recent decline] was a serious slump for semiconductor stocks," Jim Reid and his colleagues at Deutsche Bank told clients this morning. AI is now regarded as a liability, not a benefit, according to some analysts. "If AI continues to disrupt, if not destroy, more and more business models, won't that cause a recession?" asked Ed Yardeni of Yardeni Research in his recent email. "It might if it triggers lots of white-collar layoffs, which in turn lead to blue-collar job losses. Alternatively, it might cause a credit crunch in the private credit markets. UBS Group AG has raised its private credit default forecast, with its strategists warning that losses could reach as high as 15% in a worst-case scenario, up from 13% just weeks ago," he said, citing Bloomberg. Corporate America appears to be slowly waking up to the fact that banging on about AI all the time is hurting, not helping. Bespoke tracked the mentions of AI in conference calls by Apple, Amazon, Alphabet (Google), Meta, Microsoft, and Nvidia, and discovered that chief executives are dialling down their mentions of AI. "'AI' was mentioned 348 times this quarter. As shown below, that's down quite a bit from the 401 'AI' mentions last quarter, and it's 102 fewer than peak 'AI' reached during the Q1 2025 earnings season," the group said.

AI Is Rewriting Markets -- And Goldman Says HALO Stocks May Be The Big Winners - First Trust DJ Internet Index Fund (ARCA:FDN), VanEck Gold Miners ETF (ARCA:GDX)

AI Is Rewriting Market Leadership -- Goldman Says HALO Stocks Are The Big Winners Just a couple of years ago, companies that scaled without heavy capital expenditures dominated global equity markets. Growth stocks -- particularly in technology -- commanded persistent valuation premiums. But according to a new Goldman Sachs note from strategists Guillaume Jaisson and Peter Oppenheimer, that era is giving way to something structurally different. What's emerging instead as the new market paradigm is what they call HALO -- Heavy Assets, Low Obsolescence. AI's Dual Shock To Markets Goldman Sachs sees a dual shock from AI. The first is a direct disruption to the Software-as-a-Service, or SaaS, business model. "AI is disrupting many of the traditional new‑economy business models that dominated the past decade," Jaisson said. According to the firm, the recent selloff in Software and IT Services does not reflect an earnings collapse. It reflects a repricing of terminal value and long-term margin durability. The second effect of AI is transforming former capital-light champions into capital intensive giants almost overnight. "The five US hyperscalers have embarked on an unprecedented spending cycle," Goldman Sachs analyst said. Since ChatGPT launched in 2022, U.S. hyperscalers are set to deploy around $1.5 trillion in capital expenditures between 2023 and 2026. Before 2022, they invested roughly $600 billion across their entire history. In 2026 alone, their capex is on track to exceed $650 billion. What Are HALO Stocks? Goldman introduces a framework called HALO: Heavy Assets, Low Obsolescence. HALO companies share two traits. They rely on substantial physical capital with high barriers to replication. They own assets whose economic relevance persists across technological cycles. Examples include transmission grids, pipelines, utilities, transport infrastructure, critical machinery and long-cycle industrial capacity. These businesses are difficult to replicate due to cost, regulation, engineering complexity or time to build. According to Goldman Sachs, utilities, basic resources, energy and telecom stand out as unmistakably capital intensive, built on regulated infrastructure, high fixed investment and long-lived assets with limited obsolescence. At the other extreme, software and IT services, internet, media and digital platform businesses fall squarely into the capital light category, driven more by human capital than physical assets. Industry performance now clearly reflects that rotation: The Data Is Following The Narrative Several forces are reinforcing this rotation: That shift raises a deeper question for investors. If AI compresses margins in software while driving massive physical investment elsewhere, the market's old leadership playbook may not work the same way. Goldman's call suggests the next winners may not be the most scalable. They may be the hardest to replace. Image: Shutterstock Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.

Jefferies updates its AI Risk Basket (AIBD:NYSEARCA)

The Jefferies AI Risk Basket used to identify potential decliners from the impact of AI, is down 24% this year. "Ironically, we use an AI-assisted search algorithm to identify our AI-risk basket," Desh Peramunetilleke, head of quant strategy, wrote. "The starting Many constituents face significant business model risks from AI-driven disruption identified by a quant-based selection process. Software, IT services, financial data, and proptech companies like Unity Software, Atlassian, and EPAM Systems are highlighted due to risks such as automation, lower fees, and commoditization from AI advancements. Individual stocks risk impacts like commodity pricing, AI agents bypassing existing platforms, automated labor and fee compression, and AI reducing core product value as detailed for each company in the basket.

BofA sees a number of AI-related risks that could challenge rally in EU stocks By Investing.com

Investing.com - The era of easy gains in AI-related stocks might finally be over. While investors spent the last year pricing the AI revolution as an "upside-only" win for corporate profits, a new BofA Global Research note suggests the market is starting to wake up to the "double-edged sword" nature of the technology. The bank is now projecting a 15% downside for the Stoxx 600 index by the second quarter of 2026. This bearish outlook stems from the growing realization that while AI creates winners, it also carries a massive "obsolescence risk" for sectors like insurance, asset management, and traditional software. One of the biggest red flags highlighted by BofA is the current consensus for earnings growth. BofA analysts have pointed out that global equities are currently priced for a 17% annualized EPS growth over the next five years, which now seems wildly over-optimistic because it ignores how AI competition will most likely cannibalize existing profit margins. Essentially, companies might be forced to spend more on AI just to stay in the same place, eating into their margins. There's also the "productivity disappointment" factor. While the market is pricing in U.S. productivity growth of nearly 3%, official projections from the CBO sit as low as 0.1% for the next decade. If AI doesn't deliver the massive efficiency gains that investors have already paid for, the valuation gap could snap shut violently. Where to hide: Staples over semiconductors Because the "AI infrastructure" trade, such as semiconductors, mining, and capital goods, looks so stretched, BofA has officially downgraded semiconductors to Underweight. The analysts argue that for the first time, investors are actually starting to worry about corporate over-investment in AI capex, especially with electricity costs and DRAM prices staying high. So, where is the "safe" money going? The note suggests moving into sectors that are either immune to AI disruption or that benefit from higher risk premiums. The bank is now favoring "boring" defensive areas like food and beverages, telecoms, and chemicals. Interestingly, the bank remains Overweight on software. While the sector has been punished lately, BofA argues the "intensity of concern" is overblown for companies that own proprietary data and are deeply embedded in customer workflows. For such firms, AI might actually be a defensive moat rather than a wrecking ball.