Analysts at BCA Research, among them Peter Berezin, argue that the artificial intelligence - AI - expansion could deliver broader economic profit gains without necessarily increasing margins for most companies. Their note warns that AI's disruptive effects on existing business models may blunt margin expansion, even as the technology lifts overall productivity.
"This is partly because AI could be extremely disruptive to the business models of existing companies," the analysts wrote, pointing to recent weakness in software shares as evidence of that disruption. They noted that a selloff in software stocks over the past few months illustrates investor concern about the changing competitive landscape.
Those concerns have extended beyond pure software names, the note said, with investor jitters spilling into other industries including financial services, real estate, and insurance. The disruption, BCA warned, has cast doubt on a previously widespread belief that heavy AI investment would directly translate into higher earnings across a wide range of firms and further fuel the stock market rally.
Investors have also grown anxious about the timing of returns from large AI expenditures. The BCA analysts explained that while the conventional wisdom held that AI would lower the cost of software development, that reduction in cost has not been confined to incumbent software companies. "It certainly has done so, but not only for established software companies. The cost of software development in general has declined, thereby reducing the moat that industry’s biggest players have enjoyed," they wrote.
The analysts elaborated that, in the end, AI may "make firms more efficient but not necessarily significantly more profitable because if all firms have access to AI, no firm will have a leg up over the other." That framing suggests efficiency gains could be broadly distributed, limiting competitive advantage and upward pressure on margins.
Against that backdrop, BCA Research argued that commodities and land-linked assets could be the primary beneficiaries if AI-driven productivity results in stronger global growth. "Demand for everything from consumer and capital goods to prime real estate will soar," the analysts wrote, indicating that broader demand increases would support commodity prices and land values.
Reflecting that view, BCA reiterated a preference for long positions in gold and copper. They also added a trade that goes long a basket of companies with sizeable land holdings versus the benchmark S&P 500. Names cited among that basket include Farmland Partners, Howard Hughes Holdings, Toll Brothers, and KB Home.
In sum, BCA Research's note highlights a scenario in which AI raises aggregate productivity and demand but does not automatically translate into wider profit margins for most firms, shifting the potential equity winners toward natural resources and land-rich businesses.
Key takeaways
- AI could expand overall economic profits without increasing margins for most firms, due to widespread access and disruption of incumbent business models.
- Investor concerns about AI disruption have contributed to recent weakness in software stocks and have spread to financial services, real estate, and insurance.
- BCA Research favors natural resources and land-heavy equities if AI-driven growth boosts demand for commodities, gold, copper, and prime real estate.
Risks and uncertainties
- Timing risk: Investors remain uncertain about when heavy AI spending will generate sizable benefits for corporate earnings, affecting many sectors' valuations.
- Industry disruption risk: AI's capacity to lower costs broadly could erode the competitive moats of established software firms, adding downside pressure to that sector.
- Spillover risk: Concerns about AI-induced disruption have already spread to other industries, including financial services, real estate, and insurance, creating cross-sector volatility.