Key Points:
- Traditional quality stocks are performing worse than value stocks.
- Investors fear AI will destroy long-standing business advantages.
- Money is moving into physical assets like utilities and Coca-Cola.
- A new strategy favors companies with “Heavy Assets, Low Obsolescence.”
The strategies that guided trillions of dollars in the stock market for years are suddenly failing. Artificial intelligence is rewriting the rules of the economy, turning the definition of a safe investment upside down. In February, high-quality stocks like Microsoft trailed behind cheaper value stocks by more than five percentage points. This gap marks the worst performance for these typically reliable companies in five years.
Investors are selling because they worry about competitive moats. In the past, big companies had strong defenses that protected their profits. Now, traders fear that AI tools can bridge those moats overnight. This anxiety makes legacy software and service-based business models look incredibly risky rather than safe.
Consequently, professional money managers are moving cash out of future-growth technology. They are pouring money into companies that exist in the here and now. Businesses with physical infrastructure, such as Coca-Cola and utility providers, are seeing a resurgence. Investors prioritize these assets because they face a very low risk of technological displacement.
Wall Street has even coined a name for this new defensive strategy: the HALO trade. This stands for Heavy Assets, Low Obsolescence. It focuses on manufacturers of power grids, pipelines, and semiconductors. The market now treats these industrial players as the new safety net against the AI revolution.
Traditional momentum trading is also flashing warning signs. Usually, investors ride the wave of companies with strong earnings. Today, stock prices rise based on whether a company is immune to AI disruption. Actual profit reports matter less than the narrative.
Volatility remains high. A recent report about AI replacing white-collar workers sent shockwaves through the tech sector. The panic caused IBM to post its largest stock decline in twenty-five years and pushed other software stocks to fresh lows.
With uncertainty peaking, the appetite for long-term betting has vanished. Investors poured seven billion dollars this month into funds that offer immediate cash returns and dividends.
