The debate over artificial intelligence has taken a sharp turn. Initial exuberance over AI’s transformative potential sparked investor fears of an AI bubble. But that concern has now been overshadowed by anxiety that the AI juggernaut will steamroll large segments of the global economy.
The evolving narrative has driven starkly divergent outcomes for companies. Investors have fled so-called “AI roadkill” — business models such as software that are expected to be rendered obsolete by AI — favouring old-economy companies that produce physical goods. Although overall returns for the S&P 500 have been negative this year, the energy, materials and industrials sectors have generated solid gains while software and other capital-light industries have suffered sharp declines. Since the start of the Iran war, energy has continued to soar while gains in other asset-heavy industries have moderated.
How should long-term investors think about investing amid these shifts?