AI Investment Is Booming—What Happens When It Flags?

Artificial intelligence-related stocks are the hot new thing on Wall Street. This year, shares in chip designer Nvidia, for instance, have almost tripled. The SG Rise of the Robots/AI Index, which tracks stocks in the field, has advanced 2.5 times in the same period. AI-oriented exchange-traded funds have seen investment inflows surge 30%.

But every market study shows that popular crazes will eventually peter out, even if the underlying businesses maintain their importance. Example: The mania in web stocks crashed two decades ago, but the internet is now a backbone of civilization.

Société Générale predicts the same fate will befall AI equities, but it has a strategy to avoid the worst of the coming plunge and emerge with solid holdings in the sector.

The French investment firm warns of upcoming “waves of AI regulation.” Talk is rife in Washington and in European capitals about adding rules governing AI to avoid it harming humans. Another likely problem, it admonishes: “AI-washing,” meaning stocks that seek to appear deep into artificial intelligence when they really are not, hoping to benefit from AI’s popularity.

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The impact of the AI mania on the market is breathtaking, SocGen found in a research report by Manish Kabra, its head of U.S. equity strategy. If AI boom stocks were excluded, the Nasdaq Composite’s 35% rally this year would be halved, he calculated, and the S&P 500’s 14% climb would be in negative territory.

What’s the best way to invest in AI? Kabra suggested investing in a broad array of AI-linked stocks, some producing the components of the concept, such as software, and others benefiting from it, such as airlines, which can use AI to improve scheduling and route planning, among other things.

As it happens, SocGen originated the Rise of the Robots index, which it holds up as a template for AI investors. Sure, the firm is talking up its own product, but no fund provider has yet licensed it. The index holds 150 stocks, ranging from Nvidia to Delta Air Lines.

Kabra pointed out that Federal Reserve rate hikes almost always result in a recession and recommended AI as a hedge against it, apparently assuming that some of its providers will prove so vital to businesses that they will do OK in a downturn.

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Tags: AI, Artificial Intelligence, Federal Reserve, Nasdaq Composite, recession, Regulations, S&P 500, SG Rise of the Robots/AI Index, Société Générale, Technology

New York State Comptroller Thomas DiNapoli, trustee of the $242 billion New York State Common Retirement Fund, announced the fund has struck deals with seven portfolio companies to get them to be more transparent about their spending on political issues.

The companies are Match Group Inc., Penn Entertainment Inc., Warner Bros. Discovery Inc., Zillow Group Inc., Paramount Global, Zoom Video Communications Inc., and Travelers Companies Inc.

According to DiNapoli, Match, Penn, Warner Bros. Discovery, Zillow, Paramount and Zoom agreed to publicly report monetary and nonmonetary contributions and expenditures to any campaign for or against a candidate or intended to influence public opinion on an election or referendum.

The shareholder proposals the NYCRF had filed with the companies called for them to provide a semiannual report disclosing their policies and procedures for using corporate funds to participate or intervene in a campaign on behalf of or against a candidate running for public office. The proposal also called for the disclosure of how company funds have been used to influence the general public, or any segment of it, regarding an election or referendum.

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“Political activity can pose increasingly significant risks for companies,” the pension fund’s shareholder proposal stated, “including the perception that political contributions—and other forms of activity—are at odds with core company values.”

Meanwhile, Travelers Companies agreed to adopt policies that require it to disclose dues of $25,000 or more it pays to trade associations and social welfare organizations, as well as the lobbying allocations associated with those contributions. According to the fund’s shareholder proposal, without knowing which candidates and causes Travelers’ political spending supports, the company “faces reputational risks when it cannot assure shareholders that its political spending aligns with core values, business objectives, and policy positions.”

As a result of the agreements, DiNapoli withdrew shareholder proposals the fund had filed with each company. The state comptroller’s office said that since the Supreme Court struck down certain restraints on corporate political spending in 2010, the office has filed 179 shareholder proposals regarding political spending disclosure, with 61 corporations adopting or agreeing to adopt disclosures.

“In today’s political climate, corporations that engage in political spending risk damaging their reputations,” DiNapoli said in a release. “Shareholders need transparency to be able to assess whether corporate political donations align with shareholders’ interests. It is imperative that companies, at a bare minimum, proactively disclose all corporate funds spent on political causes.”