The AI effect: why active management matters more, not less

Artificial intelligence (AI) is often discussed as if it were a single market theme. In reality it is becoming a powerful source of dispersion across markets, within sectors, and for companies. The investment question is not simply whether AI will continue to grow, but which companies will capture the economics of that growth – and which will see existing profit pools eroded.

We’re already seeing this dynamic play out in 2026 so far, with headline technology indices suggesting the AI trade looks broad-based. However, beneath the surface, the outcomes have been very different. Companies exposed to the production of AI infrastructure – semiconductors, memory, networking, power, and data-centre capacity – have benefited from strong demand, supply constraints and earnings upgrades. At the same time, parts of the software market have struggled as investors reassess the durability of earnings streams in a world where AI-native tools, bespoke workflows, and usage-based pricing may challenge traditional ‘off-the-shelf’ and seat-based models.

The disruption risk is not only confined to software. Across sectors, the use of AI is beginning to change how companies compete:

• In financial services, some firms are using AI to improve adviser productivity, customer service and operational efficiency
  
  
• In industrials, companies with deep domain expertise, proprietary data and embedded customer relationships may be better placed to apply AI safely and effectively than new entrants
  
  
• In logistics, companies are deploying AI-driven, real-time route optimisation to respond dynamically to changing demand and network conditions
  
  
• In oil and gas, AI is increasingly being used to interpret complex subsurface data and optimise well planning and production
  
  
• In e-commerce, platforms are adapting by embedding AI deeper into merchant workflows, while in professional services, firms are rethinking how much work needs to be delivered by people versus automated tools

In each case, we believe the important question is not whether the sector survives, but where value migrates within the sector.

Our Active Equities team views this as ‘the Kodak* lesson’. Photography did not disappear when digital cameras arrived; if anything, image creation exploded. What changed was where value accrued. Despite Kodak’s ~80% market share in the 1970s[1] – film, chemicals and processing lost relevance while sensors, devices, software, platforms and distribution captured the economics. We believe AI could create similar ‘Kodak moments’ across multiple industries simultaneously.

We do not think this is simply a story of sector winners and losers. The more important question is which companies within each sector will be able to harness AI as a differentiator. Like electricity before it, AI is a general-purpose technology. Electricity reshaped the food retail industry through refrigeration and transformed industrial processes through automation and extended production hours. Its impact was broad, but uneven. The same is likely to be true of AI.

This is why we believe AI strengthens the case for bottom-up stock selection. While passive investments and index exposure capture the aggregate outcome, AI is unlikely to be an aggregate story, in our view. Our approach to active equities aims to identify the companies where scarce assets, proprietary data, customer access, pricing power, or mission-critical workflows support sustained advantage, while conversely identifying those businesses whose products become easier to replicate, whose pricing models are undermined, or whose role in the value chain is bypassed.

For active managers, the task is to identify and track these shifts as they evolve. This requires a disciplined, ongoing research process: understanding where value is migrating, testing the durability of competitive advantages and assessing how quickly management teams are adapting. The signal comes through company-level evidence – margins, pricing models, product development, customer behaviour, capital allocation and earnings revisions – which ultimately determines where value accrues.

AI is not just a growth theme. It is a dispersion engine. In a world where technology is reshaping profit pools company by company, active management becomes more important, not less.

*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an L&G portfolio. The above information does not constitute a recommendation to buy or sell any security.

[1] Source: The Kodak case and the lesson no company should forget - ENEB