Global equity markets are increasingly fragile, dominated by the US, which in turn is heavily influenced by the AI boom. Many investors are therefore exposed to a single dominant theme. The vast sums being spent on building AI infrastructure support the US economy, driving the stock market and bolstering consumption through the wealth effect.
Global equities have become dominated by the US and by AI, leaving markets highly concentrated and expensive. Should this spending be questioned and ultimately reigned in – expected given uncertain returns on capital – the effect will be material.
Meanwhile, investors have sought to price the effects of AI on individual businesses. Broadly, hardware companies have been bid up as the clear beneficiaries (witness Nvidia), whereas many software firms have suffered owing to perceived risk of disruption.
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AI is a transformative technology that will reshape economies, but we believe this effect will take years to develop, suggesting investors have overemphasised near-term effects. If enthusiasm for AI wanes and spending is curtailed, this “hardware good, software bad” dynamic may well reverse. In our view, this creates a great opportunity.
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Beyond the AI boom: three low-risk stocks with long-term promise
Two companies that we consider fit the bill are ADP and Accenture. Automatic Data Processing (Nasdaq: ADP) is a high-quality, defensive compounder with a dominant position in global payroll and management software. It benefits from massive scale, deep regulatory expertise, and high switching costs, supporting recurring revenues and strong client retention. Structural tailwinds – outsourcing, workforce complexity, and cloud adoption – support steady mid-single-digit growth, making ADP attractive to long-term, low-risk investors. We think it may well benefit from AI being deployed, rather than suffering.
Accenture (NYSE: ACN) is a global leader in IT consulting and digital transformation. It benefits from long-term structural tailwinds, including cloud migration, data and AI adoption, cybersecurity, and initiatives to improve companies’ efficiency. A largely variable cost base supports margin flexibility through cycles, while strong free cash flow underpins consistent capital returns. Its execution track record and exposure to mission-critical spending make it a high-quality compounder over time. As AI becomes ubiquitous in the global economy, we expect it to bolster demand for Accenture’s services and improve margins.
A separate but attractive opportunity, unrelated to AI, is Novo Nordisk (Copenhagen: NOVO-B), a pioneer in anti-obesity medications. The stock has slid by 70% in 18 months, which we believe reflects overly pessimistic views on competitive and pricing pressures, rather than any permanent impairment of the franchise.
Novo remains the clear number two in a structurally attractive, underpenetrated global obesity market expected to burgeon over the next decade. Novo’s valuation has fallen to 13 times earnings at the lows – well below historical levels – despite exceptional returns on capital and strong cash generation.
New leadership, strategic pricing moves to expand access (notably with oral GLP-1s), and a credible next-generation pipeline led by CagriSema all bode well. Sentiment and expectations have overshot fundamentals, creating an attractive entry point with asymmetric upside as growth normalises from 2027 onwards.
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