AI Disruption – A Time of Risk and Opportunity

Ian Ferry


Brian Tolles


In Jackson Square’s view, understanding how the AI disruption represents a technological inflection point is imperative when considering investing in tech or communications services companies today. 

While it is difficult to forecast the magnitude of any technology’s impact, we think it is fair to draw comparisons to developments such as mobile adoption or cloud computing. However, the initial hype cycle for AI is creating speculative distortions in security prices and the market has been quick to crown perceived winners, and apply a “shoot first, ask questions later” approach to perceived losers. These quick takes should be viewed with caution, as we observed that more than half of the companies on a prominent sell-side “AI Winners” list also appeared on a competitors’ “AI Losers” list. Further, perceptions of several bellwether companies such as Google and Adobe flipped essentially overnight from negative to positive.

Accelerated Early Adoption 

AI disruptionAI will be a horizontal technology adopted by nearly every industry to some degree, and the most promising investment opportunities presently are enablers or “arms dealers,” rather than nascent companies depending on AI adoption to establish a long-term barrier to entry. For example, Microsoft invested heavily in creating generalizable tools for enterprises to create domain-specific AI products, as well as infusing AI into its applications like GitHub or Office365. This approach suggests that they believe established businesses are best poised to capture value from AI-enabled products, and the best way to capture value is via best-in-class infrastructure versus trying to “disrupt” companies like vertical software vendors.

With this in mind, our team believes the semiconductor industry represents the “front line” of AI given the benefit from a new wave of computationally intensive tech investments from a wide swath of industries. Next in line are hyper-scale cloud providers and dominant vertical software vendors with unique datasets and strategic customer relationships. Lastly will be the most forward-leaning companies in non-technology related sectors who gain a leg up on peers. 

AI’s Short- and Long-Term Impact on the Market

The rise of generative AI is likely to drive significant dispersion within the small and mid cap landscape over the next decade, as market winners deploy AI tools to drive share gains and improve incremental profitability at the expense of market losers. That said, evaluating these prospects remains difficult beyond assessing management quality and cultural willingness to innovate and reinvent existing approaches. 

AI DisruptionWe are thinking through the long-term implications for various industry structures from second- and third-order downstream impacts of the AI arms race. Ultimately, several industries viewed as “protected” from the threat of new entrants will experience a flood of competitors delivering goods and services “cheaper, faster, better,” and at superior profitability. Conversely, there will be incumbents in existing industries with forward-thinking management teams who aggressively embed AI into their business models and permanently outrun the competition. One analogy we are reminded of is how the prior management team at Domino’s Pizza (DPZ) invested aggressively and early in mobile and big data to dominate the competition and improve profitability. The stock >20x’d over the former CEO’s tenure (March 2010 – June 2018) and outperformed first-order digital disruptor Amazon due to accelerating share gains and improving unit economics in an industry that typically grows no more than 1-2% per year. 

More Opportunity Than Risk 

Generative AI will bring many opportunities to find the next Domino’s while avoiding management teams that do not see where the puck is going. There has never been a time when understanding fundamental change and evaluating a team’s strategic roadmap is more critical to future equity returns than it is today.   

Lastly, while numerous headlines focus on the AI “disruption,” it is worth noting that technological inflections inherently create value for society and, in turn, corporations. While some businesses will certainly prove to be losers, we see more opportunity than risk overall. We believe it is important to find situations where value is being created, as mistakes of omission will prove to be the most expensive, as is often the case in major technological inflection points.

Past performance is not a guarantee of future results.


This is not an investment recommendation or a solicitation to become a client of Jackson Square Partners, LLC (“Adviser”). Past performance is not indicative of future returns. This communication is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any financial product, service or security, an official confirmation of any transaction, or as an official statement of the entity sending this message. You should not use e-mail to request or authorize the investment in any security or instrument, or to effect any other transactions. We cannot guarantee that any such requests received via e-mail will be processed in a timely manner. The securities identified are for informational purposes. Some of these securities may be holdings in our strategy but they do not represent all the securities held in the strategy. The reader should not assume that an investment in the stocks identified was or will be profitable. A full list of securities is available upon request. This presentation may contain forward-looking statements which are based on an assessment of present economic and operation conditions, and on a number of assumptions, statements of intention and the subjective opinion of management regarding future events and actions that, as at the date of this presentation, are expected to take place. Such forward-looking statement are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions, and other important factors, many of which are beyond the control of the Adviser. Although derived from sources we believe to be accurate, JSP does not warrant any of the information contained in this presentation.


Unless otherwise indicated, this message is intended only for the personal and confidential use of the designated recipient(s) named above. If you are not the intended recipient of this message you are hereby notified that any review, dissemination, distribution or copying of this message is strictly prohibited. We do not waive confidentiality by mis-transmission. Email transmission cannot be guaranteed to be secure or error-free. Therefore, we do not represent that this information is complete or accurate and it should not be relied upon as such. All information is subject to change without notice.


This represents the views and opinions of Jackson Square Partners. It does not constitute investment advice or an offer or solicitation to purchase or sell any security and is subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader theme


AMG Funds LLC takes no responsibility for the accuracy or factual correctness of any information contained herein. While all information is believed to be reliable, AMG Funds does not warrant this information to be correct or accurate and expressly disclaims any such warranty. This information may become inaccurate before it is updated.


Ian Ferry


Brian Tolles


PUBLISHED: September 1st, 2023
5 Min Read

Get Our Latest Posts Delivered Right To Your Inbox.

More Like This

Keep Calm and Remain Diversified

February 17th, 2022 | by AMG FUNDS

For generations, investors have looked to the financial markets to build wealth by participating in the growth of economies both near and far. Keep Calm and Remain Diversified is a program created by financial advisors for financial advisors and their clients. We listened to advisors' biggest challenges and aligned with

Read Blog

The 2023 Chip Wars

February 6th, 2023 | by Brian Tolles

Amid escalating tension between the U.S. and China, the semiconductor industry has earned a special place in the front of policymakers’ minds in both nations.

Read Blog