For the past three years, investors have rewarded companies that could benefit from AI.

And companies have invested heavily to stay on the cutting edge of new technology. Big Tech firms like Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), and Meta (META) have poured billions of dollars on AI-related capital expenditures. In 2026 alone, these firms are forecasted to collectively spend $600 billion on AI infrastructure.

However, after years of being thrilled by AI spending and advancements, it seems the mood has shifted. Investors are now realizing that just as AI has the power to revolutionize a business, it also has the potential to deem others obsolete, and these companies have drawn the market’s ire.

For the past few weeks, software stocks have been in a rout. Recent advancements in AI reignited fears that legacy SaaS businesses could be replaced by cheaper AI models. The S&P Software Index is down roughly 20% this month.

On top of this, shares of Microsoft, Alphabet, and Amazon have continued to slump despite reporting strong earnings a few weeks ago.

Investor anxieties regarding AI have continued to roil Big Tech and other corners of the market. The selloffs that negatively impacted software firms have spread to payment processors and even delivery app companies.

With investors dumping shares, some of the money has flowed to so-called heavy assets, low obsolescence (“HALO”) stocks.

HALO stocks, a term coined by Josh Brown, CEO of Ritholtz Wealth Management, in early February, refers to companies that produce goods or services unlikely to be disrupted by AI.

Companies that have benefitted from the HALO trade include McDonald’s (MCD), tractor manufacturer Deere (DE), and Exxon Mobil (XOM).

Goldman Sachs supported the argument for HALO stocks as well. It recently launched SPXXAI, an S&P 500 index that doesn’t have AI stocks.

The bank also published a report revealing that a basket of capital-intensive European firms has outperformed their capital-light counterparts by 35% since 2025.

Among the capital-heavy firms are Airbus (AIR), Diageo (DGE), Volkswagen (VOW3), and others. Meanwhile, software companies SAP (SE) and Dassault Systemes (DSY), were among the capital-light firms that were named in Goldman’s report as laggards.

While U.S. stocks weren’t named in Goldman’s report, in the past month, the S&P 500 segments for industrials, materials, and consumer staples are up 18%, 22%, and 12%, respectively. Meanwhile the rest of the index is only up around 5%.

The recent volatility in the market indicates that investors are no longer just looking for safe and stable businesses anymore. They’re also looking for opportunities that are insulated from the disruption brought about by AI.

While it’s natural to look for a hedge against disruptive forces like AI, the bearish sentiment prevailing may be overblown, and can lead investors to potentially ignore non-HALO stocks that still present compelling opportunities and upside in today’s AI-driven bull market.

Recent sell-offs highlight the risks of software companies that are at risk of obsolescence in the new world of AI. However this also created an opportunity for investors to identify historically efficient businesses that are poised to thrive as they integrate AI.

The so-called SaaS-pocalypse and HALO trades have created an opportunity to invest in these resilient stocks at favorable valuations.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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