Surviving the AI Revolution: Who Will Thrive and Who Will Struggle?

The AI Revolution: Separating Winners from Losers

The advent of ChatGPT sent shockwaves through the business world, sparking fears of artificial intelligence disrupting industries across the board. Two years on, the impact has been less catastrophic than predicted, but anxiety still lingers.

Adobe’s Cautionary Tale

Earlier this month, Adobe Inc.’s shares plummeted after a disappointing revenue forecast, reigniting concerns that the company may lose ground to AI-powered startups like OpenAI and Runway AI. Despite developing its own AI tools, Adobe’s struggles serve as a warning to investors that the jury is still out on whether AI will ultimately benefit or harm its business.

A Murky View of Winners and Losers

“It’s too soon to say whether a company can adapt to AI or be roadkill,” notes Gil Luria, head of technology research at D.A. Davidson. The impact of AI on the market will take more than 24 months to unfold, and the clear winners and losers remain unclear.

Thriving Despite AI

Some companies thought to be at risk have defied expectations. Duolingo Inc., for instance, has seen its shares rally over 50% this year, thanks to its successful integration of AI, which has lowered costs and attracted new customers. Internet services companies like GoDaddy Inc. and Wix.com Ltd have also seen their shares soar, with GoDaddy up 93% and Wix.com gaining 80%.

The Struggle is Real

Not all companies have been as fortunate. A Goldman Sachs basket of stocks believed to face heightened risks from AI has gained 21% since the end of 2022, compared to a 55% gain for the S&P 500 Index. Chegg Inc., an online-education company, has lost over 90% of its value since the end of 2022, with management citing headwinds from generative AI services.

The Future of AI

While tech giants like Microsoft Corp. continue to invest heavily in AI, the services are not yet widely used, and it has taken longer than expected to generate comparable AI-related revenue. As AI continues to evolve, companies that invest too late may struggle to keep up.

A Diversified Approach

For stock pickers, the risks are top of mind. In the absence of a clear view of who the long-term winners and losers will be, it’s wise to remain diversified with a bias toward larger companies that have the capital required for costly AI investments. As David Kotok, chief investment officer at Cumberland Advisors, notes, “AI is only going to intensify, so the divide between rich and poor companies will only grow.”

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