Companies Mentioned
Why It Matters
These picks give investors exposure to AI‑related growth while mitigating concentration risk, and they offer stable cash generation and upside at reasonable valuations, crucial as AI spending cycles normalize.
Key Takeaways
- •AI spending concentrates risk on US equities.
- •ADP offers stable payroll revenue with AI upside.
- •Accenture benefits from cloud, data, AI consulting demand.
- •Novo Nordisk undervalued despite strong obesity market growth.
- •Low price‑to‑earnings creates asymmetric upside.
Pulse Analysis
Global equity markets have become increasingly US‑centric, driven by massive capital inflows into AI infrastructure. While the sector promises transformative productivity gains, its rapid expansion has inflated valuations and left investors vulnerable to a single thematic swing. Diversification away from this concentration is becoming a strategic priority, especially as analysts question the near‑term return on AI‑related capital expenditures.
Within this context, Automatic Data Processing (ADP) and Accenture emerge as defensive yet growth‑oriented opportunities. ADP’s dominant payroll platform generates recurring revenue streams, high switching costs, and benefits from cloud‑based workforce solutions, positioning it to capture incremental AI efficiencies without sacrificing stability. Accenture, a global leader in IT consulting, leverages its variable‑cost structure to scale margins as enterprises accelerate cloud migrations, data analytics, and AI integration. Both firms exhibit strong free cash flow and disciplined capital returns, making them resilient compounders should AI spending moderate.
Novo Nordisk offers a contrasting, non‑AI narrative anchored in the burgeoning obesity market. Despite a 70% share price decline, the company trades at roughly 13‑times earnings, well below historical averages, while delivering robust returns on capital and cash generation. New leadership and an expanding GLP‑1 pipeline address pricing concerns and broaden patient access, setting the stage for sustained growth through 2027 and beyond. Investors seeking asymmetric upside can therefore balance AI exposure with a health‑care play that benefits from long‑term demographic trends.
Three key winners from the AI boom and beyond
Beyond the AI boom: three low‑risk stocks with long‑term promise
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.
AI is a transformative technology that will reshape economies, but we believe this effect will take years to develop, suggesting investors have over‑emphasised 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.
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)
Novo Nordisk, a pioneer in anti‑obesity medications, has seen its stock slide 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, under‑penetrated 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 Cagri Sema all bode well. Sentiment and expectations have overshot fundamentals, creating an attractive entry point with asymmetric upside as growth normalises from 2027 onwards.
This article was first published in MoneyWeek's magazine.
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