Before the bell: AI from dream to nightmare

After software, financial players are now being sold off as well. Currently in favor: industry and beer.

Markets in Europe and the US started the week with losses of around one percent. As often happens, individual stocks are seeing sharp moves — mostly to the downside. Fears that artificial intelligence could at least partially push payment processors out of the market triggered a wave of selling among financial groups such as JPMorgan Chase & Co (-4.2%), Visa (-4.5%) and American Express (-7.2%). Only PayPal (+5%) escaped the rout after Bloomberg reported takeover interest in the low-valued company. The biggest victim of the sell-off was IBM, as the company is highly active in banking systems via the legacy programming language COBOL. AI developer Anthropic announced that its AI solution can also work with COBOL. Driven more by fear than reason (?), investors are dumping companies perceived as threatened at almost any price. As if to fuel the panic further — and attract attention — “Citrini Research” published a report outlining, “as a thought experiment,” a future in which software companies eventually see demand collapse because AI replaces them.

Mainland Chinese markets reopen today with modest gains, while Hong Kong is down 2%. Japan’s Topix is up a few tenths of a percent. Wednesday will bring a wave of important corporate earnings. Today is more limited, with Solvay reporting in Europe and Home Depot and US consumer confidence data on the agenda in the United States.

Investors spit out software

The sharp share price declines over the past year in companies such as SAP (-3.4%), Wolters Kluwer (-4.3%) and Salesforce (-3.8%) already suggested that their activities are not immune to AI disruption. In recent months, Microsoft (-3.2%) has joined that list. The stock has lost 20% this year. The world’s largest software company, with a market capitalization of 2.855 trillion dollar, has slipped to fifth place in the ranking of the largest listed companies. Yet at 22 times this year’s expected earnings, the stock has rarely been this inexpensive. For those who believe AI truly threatens the software giant, that valuation may still seem expensive. Is Microsoft a value trap? We never imagined we would one day ask that question about this company. Let alone that we already have a clear answer.

Where to shelter from AI frenzy?

Where can AI disruption do little damage? In businesses where physical processes form the core of operations, such as industry, chemicals, materials and real estate — trades in which Europe and Belgium still excel. Or take a brewer like AB InBev (+1.3%). It helps that the company can once again report solid results and enjoys near-monopoly profits in Mexico. Another example is Viohalco, the Greek group with a portfolio of metal-processing companies ranging from steel and copper to a producer of high-voltage cables. Strong profits have also enabled the group to build up a substantial real estate portfolio. Spaarvarken Jan is a fan, but chasing stocks that are sprinting higher every day may not be wise either. The stock market is a place of extremes: a share price can go nowhere for years and then suddenly explode. With this well-managed holding, fortunately, it is exploding in the right direction. Subsidiary Cenergy tells a similar story.

Did you know…

that OpenAI (ChatGPT) is now telling investors it plans to spend 600 billion dollar on infrastructure by 2030? Just a few months ago, CEO Sam Altman was still talking about 1.4 trillion dollar.

This article was translated from Dutch and was originally published on Spaarvarkens.be.