AI adoption can work. One example

A key point often missed in the debate over whether tech stocks — and the broader market — are in a bubble is that an important segment of tech is clearly not. Tech hardware stocks, in particular, have clearly underperformed.

Using equal-weighted, weekly-rebalanced portfolios over the past three years, the top 500 market-cap stocks returned 13% annualized (12% YTD). The equal-weighted tech sector within this universe delivered a 25% annualized return (20% YTD). By contrast, the tech-hardware subgroup posted an annualized return of -6% and a YTD return of -5%.

Within this struggling hardware segment, however, some companies report using AI to boost revenue and reduce costs -- and their stocks have performed exceptionally well.

Using OpenAI tools implemented by Finsera, a prompt was applied to earnings-call transcripts and 10-K filings to identify companies that report using AI to boost revenue and reduce costs. The 25 companies whose disclosures most closely matched the prompt were used to construct an equal-weighted portfolio, rebalanced weekly.

Over the past three years, this AI-adopter portfolio has produced a 35% annualized return and is up 35% year-to-date.

The chart highlights the impact: tech-hardware companies adopting AI in this way have far outperformed the broader market, the tech sector, and the tech-hardware subsector.

This is a concrete example of how AI adoption that improves a company's economics can translate into strong stock performance.

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