By: Michael Sellers
Partner, Portfolio Manager
One of the early equity market themes of 2026 has been a noticeable shift in investor sentiment toward AI-related companies.
What was once a market dominated by unbridled enthusiasm about artificial intelligence’s transformational potential has now pivoted to concerns about the potential economic promise and disruptive risks of AI innovation.
AI Disruption Hits the Markets
To be clear, AI-related investment by the hyperscalers continues at a feverish pace. The four largest mega-cap Technology companies—Alphabet, Amazon, Meta, and Microsoft—are projected to spend a combined $625 billion on AI-related infrastructure in 2026.In a recent interview with CNBC, Nvidia CEO Jensen Huang said chip demand is, “going through the roof” in what he believes is the “largest infrastructure buildout in human history.”
The market, however, is taking a more disciplined and selective approach to actually investing in the AI theme as of late. It’s taking a discerning eye to both cost discipline and the potential transformational, yet disruptive, effects AI could produce.
More recently, the markets have been trying to digest what AI-driven disruption could mean for established business models across multiple industries.
Last week, Anthropic released an update to its Claude Cowork platform, adding capabilities to automate contract review, templated responses, and legal briefings. The announcement was met with an immediate sell-off in segments of the software-as-a-service (SaaS) industry as investors reassessed the durability of traditional subscription-based software models in the face of increasingly capable AI competition.
This week, a firm called Altruist launched an AI-powered tool that is designed to create personalized tax strategies for individual clients, sending the stocks of retail wealth management firms sharply downward.
Thursday’s market reaction to Algorhythm Holdings’ announcement is yet another example. Algorhythm Holdings, which, until recently, was in the business of selling karaoke machines under the name Singing Machines, announced it developed an AI tool that can increase logistical efficiencies in trucking and rail markets. The Dow Jones Transportation Average fell 4% on the news, its largest daily drop since last April.
It is important to note that Algorhythm has a less than $3 million market cap with no clients currently using the tool in the US. Yet the mere announcement of a potential disruptive technology was enough to push an entire segment of the market into “risk off” mode.
While the long-term viability, reliability, and regulatory framework surrounding these tools remain unproven, the market’s reaction sends a clear signal: AI’s disruptive potential must now be considered across a broad range of industries, not just within technology itself.
What Does This Mean For Investors?
First, it is apparent the “buy everything AI” frenzy last summer and fall is losing momentum, at least for now. Investor sentiment has become more measured, particularly regarding the large capital expenditures associated with AI infrastructure buildouts and the uncertain timeline to profitability.Second, it is apparent that the AI disruption is beginning to have ripple effects felt across industries from tech to legal to finance. As these effects unfold, they have the potential to create significant dispersion in returns and heightened volatility across industries.
Our perspective is that the AI trade is becoming increasingly more nuanced, with the gap between winners and losers widening as the theme evolves. Companies that provide the foundational infrastructure, such as semiconductors, data centers, and cloud capacity, are the potential beneficiaries on the continued massive capital investment from the hyperscalers.
On the other side of the AI coin are companies whose core businesses are centered around data aggregation and automation—those companies will likely continue to feel pressure.
For investors, this environment requires greater selectivity. It demands a more disciplined approach to distinguishing between companies that are structurally vulnerable, those that are AI-resistant, and those that are positioned to integrate AI in a way that enhances productivity and competitive advantage.
Final Thoughts
We also caution that the AI momentum will continue to trigger “risk-on” and “risk-off” environments. There will be periods of volatility and the related “baby getting thrown out with the bath water” moments, meaning good companies with sustainable models will get sold off in these inevitable market downturns. This will generate opportunities for the astute and patient investor.The AI evolution is still in its early stages of development. The market, and broader economy, is still trying to determine which companies and sectors can leverage AI for sustainable and more efficient economic growth. In our opinion, from an investment perspective, this next phase will be defined by discipline and discernment, not unbridled enthusiasm.
