Smart Investor: Undervalued Earnings Crushers, AI’s Threat to Moats, and ChatGPT Put to the Test

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• Weekly Market Update: Stocks Edge Lower as Consumer Defensives Rise and Financial Services Fall
• Why This Fund Manager Says AI Threatens to Destroy Company Moats
• Why AI Worries About Software Are Hitting Private Credit
• What Is Blue Owl?
• More Tech Stocks Look Cheap As the Market Rotates
• Stock Market Concentration Has Surpassed Its 1930s Peak. Should Investors Worry?
• Investors Are Dumping AI ‘Loser’ Stocks. Are the Worries Overblown?
• AI Can Do Many Things. Market Analysis Isn’t One of Them (Yet)
• 5 Undervalued Stocks That Crushed Q4 Earnings

It may have looked like a quiet week for the markets, but beneath the surface, it was anything but. Investors continue to try to make sense of investing in the brave new world of artificial intelligence. Sentiment has swung from giddy to fear, as attention has shifted from the winners (semiconductor stocks and data center suppliers) to the losers (everyone else, it seems.)

One of the underlying themes is that AI will lower barriers to entry across a huge spectrum of businesses. That strikes at the core of whether companies have economic moats, which Morningstar and others (such as Warren Buffett) consider a key determinant of long-term success. In this great Q&A, Leslie Norton spoke with Adrian Helfert, chief investment officer of multi-asset strategies at investment firm Westwood, about the impact that AI will have on economic moats and what that could mean for stock picking. Spoiler alert: Helfert thinks lots of moats will be breached.

We continue to dig into the market rotation away from the tech stocks that have led the bull market. First up, we look at what it means for valuations. Sectors that had been cheap now look pricier, and those that had been expensive (such as tech) are starting to look cheaper.

Going to the individual stock level, the story gets more complicated. As Sarah Hansen writes, there are some areas where investors are throwing the baby out with the bathwater, but other industries where stocks are still not bargains. Check out the details.

Even with the rotation, one thing that hasn’t changed much is the stock market’s incredible concentration in a handful of names. As Dan Lefkovitz writes, the market has become more top-heavy than any point in time since 1932. Should investors be concerned? Lefkovitz weighs in.

Meanwhile, we continue to watch the private credit market, another area which has seen sentiment sour significantly in recent months. Our colleague Abby Latour from LCD PitchBook explains why worries about software companies’ business models have had an outsized impact on the private credit market.

Another PitchBook teammate, Alexander Davis, looks at Blue Owl, one of the biggest players in the private credit market, exploring why its reputation has suddenly taken a hit. Davis explains: What is Blue Owl?

This week, we also began wrapping up the fourth-quarter earnings season with a screen of undervalued stocks that beat both earnings and revenue forecasts. Five stocks made the cut, including a big private credit manager (not Blue Owl) and a major semiconductor chip designer.

Lastly, John Rekenthaler checks in with an AI experiment: Could ChatGPT correctly identify and explain the software stock selloff? As expected with Rek, it’s a great read.

As always, be sure to visit our Markets page for our latest coverage and live stock market updates, along with our full weekly calendar of key upcoming data and events