{"id":26098,"date":"2025-09-17T01:28:10","date_gmt":"2025-09-17T01:28:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/ie\/26098\/"},"modified":"2025-09-17T01:28:10","modified_gmt":"2025-09-17T01:28:10","slug":"why-the-next-winners-in-the-ai-boom-may-not-be-ai-stocks","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ie\/26098\/","title":{"rendered":"Why the Next Winners in the AI Boom May Not Be AI Stocks"},"content":{"rendered":"

As my colleague Kenneth Lamont recently wrote, artificial intelligence is the \u201cdefining investment theme of our era<\/a>.\u201d The most well-known beneficiary is Nvidia NVDA<\/a>, which became the world\u2019s first $4 trillion company by enabling the technology. Less obvious winners include Vertiv VRT<\/a>, an industrial business that supplies AI data centers.<\/p>\n

But ever since ChatGPT burst onto the scene nearly three years ago, traditional growth stocks have captured most of the market spoils. Morningstar\u2019s broad US growth index<\/a> has outperformed its value<\/a> counterpart by a wide margin since late 2022. That\u2019s not to say value hasn\u2019t had moments. During pullbacks in the fourth quarter of 2024 and from February through April 2025, value stocks held up best. When AI enthusiasm resumed, however, growth pulled ahead.<\/p>\n

Will the value side of the market ever make a sustained run? Growth stock dominance in the US really goes back more than 10 years\u2014well before AI enthusiasm took hold (internationally, it\u2019s a different story<\/a>). Periods of value resurgence, like 2016 and 2022, look like aberrations in retrospect. Value investors can be forgiven for capitulating.<\/p>\n

It\u2019s worth remembering, though, that change is the only constant in markets. The stocks, sectors, and styles that triumphed in the past are rarely future leaders. Turning points are only obvious in retrospect.<\/p>\n

Catalysts for market rotations are also hard to identify in advance. That\u2019s why I was struck by the prediction Vanguard chief economist Joe Davis made during a recent interview on Morningstar\u2019s The Long View podcast<\/a>. Davis thinks AI is likely to boost economic growth and thinks its stock market impact will be greatest on the value side of the market. \u201c[I]f you\u2019re the most bullish on AI, you actually want to invest outside of the Mag 7<\/a> and technology sphere, because it\u2019s going to be that transformational. I\u2019m not picking on those companies at all. I\u2019m talking about the second half of the chessboard.\u201d<\/p>\n

I asked him to elaborate.<\/p>\n

The Best AI Opportunities Today Aren\u2019t AI Stocks<\/p>\n

Lefkovitz: Joe, you made a comment earlier, I wanted to come back to, about value stocks and how they might be a surprise winner from AI. Wondering if you could lay that out a little bit more.<\/p>\n

Davis: This was a surprise. I didn\u2019t know this, and it\u2019s not infallible like the motions of the tide, the ocean. If the tides are going out, they\u2019re definitely coming back in. But I think the odds are tilted that way. And what was a surprise to me is that there are stylistically, so very loosely, there\u2019s two phases to a technology cycle. First of all, you have to know that you\u2019re actually in a transformative technology cycle. Like, did I know in 1992 that a personal computer\u2014I know now a personal computer was transformative, but did I really know in 1992? Probably not. Our system, our data-driven framework, gives you a modest sense, but with uncertainty in real time, in 1992, because of the signals it picks up. Today, it says we\u2019re certainly likely to be in this extended technology cycle, which means there\u2019s a general-purpose technology likely to emerge.<\/p>\n

Now, in periods when they happen\u2014I wish we had hundreds of those examples. Dan, we just don\u2019t. You have electricity, you have a combustion engine. And people, even economists, debate what a general-purpose technology is. Just because we use something a lot doesn\u2019t mean it lifted everyone and fundamentally changed society. Like the microwave oven, it\u2019s a new technology. It\u2019s not a general-purpose technology. However, we are in that, and our odds are more likely than not that AI is a general-purpose technology. What happens is there\u2019s, what I was surprised to find is that there\u2019s two phases to the technology cycle. The first phase is what I call just the production of the technology is starting to spread. There\u2019s a massive investment in the space. A lot of new businesses are formed trying to produce the technology. It was in the personal computer. It was hardware, software, and the dial-up internet. I\u2019ll use that as an example because it makes it tangible.<\/p>\n

The Long View Podcast Listen to the complete conversation with Vanguard’s Joe Davis \"Collage<\/p>\n

And some will say, Oh, there\u2019s a bubble that emerges. I don\u2019t know. I mean, yes, generally enough, I don\u2019t want to make that claim. And that\u2019s really almost immaterial to the second half. What emerges in the second half of the investment cycle is what was surprising to me and gets to your question, Dan. And if this technology is that transformational as we think it is, it starts to benefit companies through higher earnings, to productivity, to new products with that technology as a platform. I\u2019ll give you two examples.<\/p>\n

In the personal computer, now I know with the benefit of hindsight, things such as online shopping, companies that sell it all, I don\u2019t know, books and music ended up being 4% of the company\u2014I\u2019m trying not to use company names, but you can think of like the jungle, Amazon AMZN <\/a>emerged. But that was not technically a technology company by the true letter of the law. It was a consumer staple. With electricity, guess what powered the assembly line? Well, two winners emerged. They were called Ford Motor Company F <\/a>and General Motors GM<\/a>. Now, electricity didn\u2019t lead to their profitability, but without those disruptive technologies, I don\u2019t think we\u2019re talking about those companies today. It\u2019s spread to sectors outside of electricity on the one hand and computers on the other. But that\u2019s how technology works. And if it\u2019s not that transformative, then it hasn\u2019t lifted growth; then it\u2019s a dud to begin with.<\/p>\n

Why Value Stocks Should be Long-Term Winners in the AI Era<\/p>\n

That\u2019s what was surprising to me is that if we play out\u2014and you have to give this five or seven years, and again, the irony is that outside of the tech sector, parts of those investing universes don\u2019t have the multiples that say the Magnificent Seven (Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla) or the technology stocks do have. And I\u2019m not saying they\u2019re not delivering value. I just said that this AI has the likelihood of being as transformative as a personal computer. That\u2019s pretty high praise. But what it says is that if it is truly this transformational, other opportunities emerge, and that\u2019s where it pushes you at the margin, given the multiples outside of value and outside of the United States. It\u2019s not being skeptical of technology. Quite the contrary. It\u2019s actually saying, no, if this thing has legs, then it\u2019s going to spider web into outside of Silicon Valley.<\/p>\n

Read More from Dan <\/p>\n

\n\t\t\t\t\t\tMorningstar, Inc., licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. A list of ETFs that track a Morningstar index is available via the Capabilities section at indexes.morningstar.com. A list of other investable products linked to a Morningstar index is available upon request. Morningstar, Inc., does not market, sell, or make any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.\n\t\t\t\t\t<\/p>\n","protected":false},"excerpt":{"rendered":"As my colleague Kenneth Lamont recently wrote, artificial intelligence is the \u201cdefining investment theme of our era.\u201d The…\n","protected":false},"author":2,"featured_media":26099,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[220,218,219,61,60,80],"class_list":["post-26098","post","type-post","status-publish","format-standard","has-post-thumbnail","category-artificial-intelligence","tag-ai","tag-artificial-intelligence","tag-artificialintelligence","tag-ie","tag-ireland","tag-technology"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/26098","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=26098"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/26098\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/26099"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=26098"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=26098"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=26098"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}