Beyond the AI Scare: Where Volatility Creates Value

AI anxiety has resurfaced. Investors are selling anything that appears vulnerable to disruption, often without regard for whether the fears are justified. Entire sectors, from software to logistics and wealth management, have experienced broad based selling. The catalyst has not been deteriorating earnings, but rather a rapid repricing of what AI might mean for future business models.

Periods like this can feel uncomfortable. They can also create some of the most compelling opportunities for long term investors.

The market’s relationship with AI has entered a new phase. The initial period of enthusiasm, where AI was treated as a universal positive for every company that mentioned it, has given way to a more sober, selective view. Investors are now attempting to separate genuine beneficiaries of AI from those they believe may be left behind.

This shift is healthy. Yet the recent selling has often been indiscriminate, moving well ahead of evidence. Across many of the sectors that have corrected sharply, fundamentals remain stable and AI is more likely to enhance earnings rather than undermine them.

A closer look at the hardest hit areas reveals a consistent pattern.

Software

Software valuations have fallen markedly, yet key operational indicators remain resilient. Retention rates are holding, licence metrics show little sign of stress and demand remains rooted in long term digitisation. Concerns about immediate seat reductions from AI tools remain hypothetical.

Legal and information services

A single new AI tool triggered heavy selling across legal research providers. However, these tools do not replicate or replace the proprietary content libraries, structured datasets and embedded workflows that define the competitive advantage of firms in this sector. Their core value propositions remain intact, and valuations have reset significantly lower.

Financial advisory

Recent volatility reflects the idea that advisory businesses may be displaced by AI driven tools. In practice, advisory remains a trust led service shaped by regulation, fiduciary responsibility and personal relationships. AI will likely strengthen advisers, not supplant them, by improving analysis, compliance and client experience.

Commercial real estate

Fears that AI will replace brokers overlook the nature of the business. Large real estate transactions remain bespoke, high stakes and dependent on complex negotiation. AI can support discovery and modeling, but human advisory remains central. Outsourced services such as facilities management are even less exposed.

Trucking and logistics

New optimisation tools have contributed to selling, yet established players are already benefiting from similar technologies that enhance route efficiency and reduce empty miles. Rather than undermining the sector, AI is improving its cost structure. Disruption risk is lower for scaled platforms with entrenched network effects.

Cybersecurity

The suggestion that AI can replace major cybersecurity vendors underestimates the importance of real time telemetry and proprietary threat intelligence. Large platforms rely on vast datasets that AI models cannot replicate in isolation. Their defensive advantage remains intact. Smaller vendors with narrower datasets may face increasing competitive pressure.

Intrasia View

At Intrasia, we view volatility not as a warning sign but as a mechanism that reveals mispricing. The recent AI related selloff has created two distinct groups. There are businesses where disruption risk is credible. There are others where the market has marked down quality companies simply because the narrative has turned.

Our role is to distinguish the two. We focus on companies where AI is likely to enhance operational efficiency, deepen competitive moats, and improve client engagement. We remain cautious around models that lack pricing power or depend on low switching costs.

We allocate selectively where fear has overtaken fundamentals.

Every technology cycle begins with euphoria and transitions into a period of reassessment. Both stages tend to overshoot. The market is now entering a phase characterised by dispersion, and dispersion is where active management delivers its greatest value.

When sentiment sells everything without distinction, patient investors who focus on fundamentals are often the ones who benefit.

Source: Morningstar