Zigzag in the Age of AI

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  Wolfgang Hagl
  Redaktor

On the stock markets, share prices zigzagged in February as if someone had swapped the curve rulers for an ECG. At times, hope flickers because a new AI deal is announced, at other times the mood sours because the same news sounds like a threat: what if artificial intelligence not only brings efficiency but also eats away at business models? This new nervousness is not just a short-term change in sentiment, but has been reflected in tangible movements. In the US, the broad software complex quickly became the epicentre of a correction: the S&P Software Index lost around USD 1 trillion in market capitalisation within a few trading days, and the financial world christened the sell-off “software‑mageddon”.

AI applications as profit destroyers

The movement was set in motion by a tool from Anthropic, based on the Claude language model, which can automate tasks in legal workflows. This is precisely where many established software providers have traditionally enjoyed margins, data advantages and pricing power. From a stock market perspective, this was the point at which AI transformed from a growth topic to a cannibalisation issue. When a model embedded in plug-ins, agents or specialised applications can perform research, evaluation, standard text or programming routines in seconds, the previous software subscription quickly becomes an interchangeable feature. It is precisely this fear that value creation will shift away from proprietary databases and SaaS interfaces to AI layers that is behind the abrupt change of opinion in the markets. “As a result, the valuation of the software sector has collapsed as quickly and sharply as rarely ever before,” states DWS CIO Vincenzo Vedda. And while the software side came under pressure, the other AI bet on data centres, chips and infrastructure was not immune: investors began to wonder whether these gigantic investments would actually pay off.

Risk of contagion

What began as a tech correction did not remain in the cloud. Within days, other sectors such as logistics also saw how quickly AI fears can become a cross-industry reflex. The correction in this area was triggered by the announcement of a new AI-supported freight platform from small provider Algorhythm Holdings, which advertised dramatic efficiency gains. Investors translated this into a worst-case scenario: price and margin pressure for estab-
lished facilitators.

However, the financial world reacted even faster than freight transport – and for one simple reason: insurance, broker platforms, comparison portals and parts of banking are themselves software businesses, just with a regulatory shell. The background here is a platform called Insurify, an AI-powered comparison tool based on ChatGPT. Artificial intelligence can reduce transaction and consulting costs, increase personalisation and open up alternative offers. “Since the beginning of the year, one sector after another has been punished on the stock market if it was suspected of having a business model that was supposedly easily vulnerable to AI,” expert Vedda aptly summarises.

Volatility amplifier

As if AI concerns were not enough, a second driver of volatility is coming to the fore at the moment: geopolitics and trade policy. In the Middle East, the conflict between Iran and the US has escalated again in recent weeks. Stalled diplomacy and massive military build-up are fuelling expectations of a possible showdown. Such tensions rarely remain confined to the news channels; they are reflected in prices, in this case in significantly rising oil prices. This, in turn, fuels inflation and interest rate speculation on the markets, and puts a strain on equities.

Added to this is a new US customs chaos after the US Supreme Court struck down key parts of a comprehensive customs package based on an emergency law. The result was a temporary global customs duty under Section 122, which was raised from 10% to 15% within hours. In practice, this means that companies are calculating possible refunds today and will have to factor in new rates again tomorrow. A Reuters estimate shows just how big the reversal issue could become: it could affect more than USD 175 billion in customs duties collected.

Quality stocks and dividends as a strategy

When the stock market barometer no longer indicates the classic factors of “growth” or “recession” but rather “uncertainty,” it is time for investors to adjust their decisions to the markets. Although it may sound boring, quality companies could play to their strengths in these times. Companies with robust balance sheets, high pricing power, recurring revenues and sustainable business models are back at the top of the agenda. Dividends are also playing a more important role again in phases such as these. This means that investors are focusing less on timing and more on cash flows. Allianz Global Investors aptly refers to dividends as a “second income” – a nice thought that is particularly comforting when prices are fluctuating nervously. In a recent study, experts concluded that companies tend to pursue a remarkably consistent dividend policy that is geared towards increases rather than cuts. In other words: a “steady hand” dividend policy. It is precisely this inertia, which seems boring in boom times, that can serve as a shock absorber during times of corrections.

In addition, dividend portfolios are less susceptible to volatility in historical comparison, according to AllianzGI’s calculations. And the sums to be expected are enormous. According to estimates, STOXX Europe 600 companies alone will pay out EUR 454 billion this year, 4% more than last year. The curve is also pointing upwards globally: according to calculations by Capital Group, global dividends have recently risen to a new record high of USD 2.09 trillion and are likely to continue to grow in 2026. Profit sharing also plays an important role in the total return on an equity investment. Over the last 40 years, the annualised total return for the MSCI Europe has been supported by a performance contribution of dividends of just under 39%.

Are these already buying prices?

In addition to alternative investment approaches, every correction raises the question: has the market already bottomed out, or is this just a temporary dip? The temptation is understandable in the case of badly battered stocks such as SAP, Oracle and Adobe. The trio’s share prices are all more than 40% below their annual highs. Some experts, such as Benjamin Melman, already see buying opportunities. The chief investment officer at asset manager Edmond de Rothschild describes the decline as exaggerated: “If AI makes development more efficient and cheaper, demand for software is more likely to increase than decrease.”

However, a lower price is only a buying opportunity if sentiment turns around again. This depends on how quickly AI can be translated into measurable productivity and pricing power, and when it becomes clear which areas will be cannibalised and which will grow. It will take a while to gain these insights. In the short term, however, the severity of the pullback could open up opportunities for rebounds either way. This is exactly where leveraged securities come into play. Those willing to take risks can use leveraged products to bet on a rebound in heavily punished stocks such as SAP, Oracle or Alphabet. The leverage can turn small price movements into large profits. But caution is advised: leverage works in both ways and can therefore also lead to large losses. In a zigzag market, leverage is not only a turbocharger, but can also become an ejector seat.

Promising alternative investments

However, there is also a slightly more relaxed approach to adapting your portfolio to the current volatile environment. Investors can use broadly diversified indices to invest specifically in quality and dividend stocks. One example is the UBS Global Quality Dividend Payers Index. This barometer not only includes stocks with high dividends, but also requires members to demonstrate quality and substance. UBS Research selects international corporations based on quantitative and qualitative criteria. These include characteristics such as a healthy balance sheet structure and sustainable sales and profit growth. In addition, there is sufficient diversification in terms of countries and sectors.

The MSCI World Quality Index offers another opportunity to play the quality card on the stock market. This index tracks the performance of quality growth stocks that must meet three fundamental criteria: high return on equity (ROE), stable annual profit growth and low debt. And it has been successful: over the past 14 years, the MSCI World Quality Index has outperformed its “big brother” MSCI World in nine years. As usual, you can find other interesting underlyings with corresponding products in our table.