The introduction of a new disruptive technology always creates winners and losers. The market’s current hot-button theme of artificial intelligence is no exception.

The founder and chief investment officer of asset manager GQG Partners, Rajiv Jain, was on record in the Financial Times at the start of June as saying there will be more losers than winners from the development of AI.

In this context investors need to be aware of firms in their portfolios whose business models might be challenged by AI, particularly based on new research from Morgan Stanley which suggests the market takes a ‘shoot first, ask questions later’ approach to companies threatened by the emergence of fresh innovations.

Analysing the diffusion of technological advancements over the last 100 years, the investment bank found that across 80 structural positive and negative adoption curves over the past 50 years, downside disruption occurs sooner and twice as quickly as upside diffusion.

The research finds that a three-year derating of more than 60% is typical for stocks perceived to be disrupted by new technology shifts. This derating can occur and be sustained for up to seven years before consensus sales and earnings expectations begin to see downgrades.

Morgan Stanley says: ’The market has, in many cases, been vindicated in its determination to “de-rate and wait”.

‘Management teams of companies experiencing disruption-induced deratings tend to reassure the market that they are not seeing any changes to their business model. Indeed, in many cases they do not experience any changes for a number of years after the first fears of disruption ripple through markets.’

It adds that the market tends to wait for proof of the absence of downgrades before rewarding stocks with a rerating.

Education publisher Pearson’s (PSON) assurances that it can avoid being disrupted by AI may not carry much weight after it was caught up in a sell-off in US rival Chegg (CHGG:NYSE) which warned on 1 May of the impact of ChatGPT on its homeworking help service.

Similarly, media group Future’s (FUTR) perceived exposure to AI disruption could do lasting damage. Canaccord Genuity’s Karl Burns argues: ‘The launch of ChatGPT increases the risk of AI-driven content disrupting the moat around Future’s business, levelling the playing field and allowing competitors to create content quicker and more efficiently than ever before, potentially eroding the benefits Future has enjoyed from its evergreen content and the Vanilla platform.’

In part the market’s focus on the losers is a function of how difficult it is to identify AI winners when so much of how it impacts the world remains uncertain, even if chipmaker Nvidia (NVDA:NASDAQ) is already showing tangible evidence of the increased demand for its hardware created by the AI arms race being driven by the big technology names.

Given the uncertainty around who might be the eventual winners, an investor might want to consider diversified exposure through exchange-traded funds that track the theme. By having exposure to a basket of companies rather than just a handful, they can spread their risks. Relevant ETFs to theme include WisdomTree Artificial Intelligence (INTL) and L&G Artificial Intelligence (AIAG).

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