Published -June 26th, 2023 @ 10:15 AM (GMT+2)

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Market Dynamics and AI

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The swift embrace of generative artificial intelligence (AI) has spurred market growth this year. However, investors are increasingly discerning potential risks and the necessity for careful selection of stocks.

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AI's Impact Across Industries

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Industries spanning IT services, consulting, media, education, and information are being scrutinized by portfolio managers for possible disruption by AI. Analysts see a tremendous positive influence on corporate profitability from AI, yet they also caution about potential losers beyond clear winners like Nvidia (NASDAQ:NVDA), especially across Europe and the U.S.

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Economic Potential and Challenges of AI

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McKinsey estimates that generative AI could contribute $7.3 trillion annually to the global economy, and half of today's job activities could be automated by 2030-2060. Nonetheless, companies must also confront significant challenges, including job cuts and business model overhauls, to fully harness AI's potential.

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AI's Possible Deflationary Impact

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Gilles Guibout of AXA Investment Managers, who oversees more than 820 billion euros ($900.44 billion), warns that AI's impact may not be universally positive and could potentially lead to deflationary effects. In certain scenarios, clients might demand price reductions, and lean startups could chip away at the market share of established businesses.

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AI Impact on Sales and Share Price

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This could dampen sales growth and trigger share price underperformance, particularly for companies with strong competition or those whose growth is contingent on staffing. Guibout cites the IT industry as an example where reduced coding manpower could result in client demands for lower prices.

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Investor Expectations from AI

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According to a recent Bank of America (NYSE:BAC) survey, 29% of global investors do not anticipate that AI will bolster profits or job numbers, compared to 40% who do.

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Market Reactions to AI

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Markets have already experienced AI-associated concerns. Shares in companies like Teleperformance and Taskus, which operate services at risk of bot replacement, have dropped about 30% this year. Pearson, a UK education firm, saw a 15% drop in a single day in May after its U.S. counterpart, Chegg (NYSE:CHGG), declared that the Microsoft-backed ChatGPT bot was impacting customer growth.

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Analysts' Views on AI Risks

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Despite these apprehensions, some analysts argue that the emphasis on the risks posed by generative AI has been overstated, leading to exaggerated price drops in certain instances. Thomas McGarrity of RBC Wealth Management expresses confidence in the ability of professional data providers to incorporate generative AI into their offerings.

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AI Adoption and Growth

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However, others remain wary, pointing to the potential for growth slowdown due to the rapid uptake of less expensive AI solutions. Andrea Scauri of Lemanik admits that AI uncertainty has dissuaded him from investing in some IT stocks, despite attractive valuations.

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Navigating AI Transitions

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Yet, he sees larger players like Accenture (NYSE:ACN) as better prepared to navigate the transition and fund necessary capital expenditures. Accenture recently announced a $3 billion investment plan for its AI initiatives, following a layoff of 19,000 employees, about 2.5% of its workforce. The company's shares have climbed 19% this year.

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‍AI and Company Performance
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‍French counterpart Capgemini has risen 13%, while firms like Relx, which manages regulated information, appear less vulnerable to potential AI challenges. Cristina Matti of Amundi emphasizes the importance of careful consideration when investing in AI, warning against indiscriminate investment.

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