Artificial intelligence is expected to perform many types of jobs that humans currently do. In most cases, that change will greatly help companies since computers are much cheaper to train and maintain than human employees. But what about the firms that currently provide the services that AI will carry out?
In the future, instead of paying those firms large amounts to perform those tasks, their current customers will deploy AI systems to do them instead. As a result, the firms’ stocks are likely to take major hits over the longer term. Among the sectors that will probably be victimized by the latter phenomenon are advertising agencies and companies that provide computer programmers to other firms. Finally, businesses that offer services for workers in certain sectors are likely to take hits as the number of employees in those spaces tumbles. Here are three stocks most at risk of AI.
WPP Inc (WPP)
WPP (NYSE:WPP), which owns advertising agencies and PR firms, is likely to take a big hit from the proliferation of AI. That’s because writing is a core function within both of those spaces, and AI is quite good at writing.
Anu Madgavkar, a partner at the prestigious consulting firm McKinsey, said that “AI is able to read, write and understand text-based data well.”
Moreover, many AI-powered tools have already been released for diverse marketing tasks such as “SEO content writing” and digital advertising.”
Making the outlook for WPP even worse, the International Monetary Fund has predicted that AI could eventually eliminate roughly 50% of marketing positions.
The proliferation of AI may already be negatively impacting the firm, as its revenue, excluding acquisitions, is expected to fall 1% this year, while Swiss bank UBS (NYSE:UBS) predicts that its free cash flow will be “depressed.”
Indian-based Wipro (NYSE:WIT) provides computer coders to other companies. The demand for Wipro’s services is likely to tumble sharply if AI becomes more productive and consistent than computer programmers.
“Advanced technologies like ChatGPT could produce code faster than humans, which means that work can be completed with fewer employees,” a Brookings Institute researcher said.
Wipro is helping its clients deploy AI. But over the longer term, as those initial deployments are completed and the technology keeps eating into its core coding business, I expect the company to be negatively impacted by the AI Revolution.
Cintas’ (NASDAQ:CTAS) core business involves providing and washing uniforms worn by workers. Since AI is expected to replace employees in many different sectors and Cintas charges companies based on the number of workers who wear its uniforms, the company’s top and bottom lines are likely to drop sharply as AI proliferates.
For example, AI may “speed up the process” of automating factories, where many employees likely wear Cintas’ uniforms. Similarly, many more functions in the oil sector, where a meaningful number of Cintas customers are also situated, will also likely be automated due to the increased utilization of AI.
Moreover, CTAS stock has a rather high forward price-earnings ratio of 40.6 which leaves it vulnerable to a correction.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.