Research Fund: Uncovering Opportunity Amid AI Disruption

How is AI reshaping the competitive landscape for your investment universe?

There is no doubt that innovative AI companies are shaking up existing industries and business models. And what we’ve seen to date is that AI disruption only needs to shorten how long the market expects a company’s competitive advantage to last to impact that company’s valuation.

The market is already aggressively discounting the value of companies that appear at risk of becoming obsolete due to AI disruption or whose management teams seemingly fail to grasp the historic opportunity presented by this technology. We’ve seen this across application software, information services, marketplaces, and platform businesses.

But the repricing is often too blunt, treating every business in a category as equally vulnerable. When you evaluate companies on an individual basis like we do, it becomes clear that competitive advantage differs significantly from one company to the next.

How does AI disruption change the way you evaluate companies’ competitive advantages?

For decades, investors relied on a familiar set of criteria to assess the unique strengths and advantages that protect a company’s profits and market share from competitors.

These include obvious things like brand and talent, but also network effects, which occur when a product or service becomes more valuable as its user base grows. Businesses with high switching costs – the time, effort, and financial expenses a customer incurs when changing brands or products – also have a competitive advantage over those where it’s relatively easy for consumers to change companies.

That old vocabulary is not dead. Network effects are real; switching costs are real. But these frameworks were built for a world where human knowledge work was expensive and organizational effort took time. With the advent of AI, that assumption is now breaking down. That means we have to look underneath those familiar labels when judging a company’s durability. And that’s where our research is focused.

What types of companies are most vulnerable to AI disruption?

We believe every durable competitive advantage rests on something scarce: a resource or capability competitors can’t easily replicate.

Human cognitive labor was once scarce. With AI, it’s abundant. Companies whose advantages have depended on routine cognitive work – work AI can now do cheaply – are most exposed as AI advances. Conversely, those built on judgement, trusted verification of accepted standards, or unique physical assets may actually be strengthening.

One way to think about AI disruption is to consider how new technology finds a scarcity bottleneck in the economy, absorbs the hard part, and makes the formerly scarce resource cheap and abundant. Then scarcity moves. And wherever it goes, the competitive advantage follows.

This is a pattern that has repeated over time. We saw this type of creative destruction in the late 1990s, when finding information was the bottleneck until Google indexed the web and made search effectively free. In the 2010s, owning and managing servers was the constraint until cloud computing made infrastructure more elastic. Now we’re in a third cycle, where human cognitive labor is the constraint and AI is absorbing it.

Using this framework, we can sort companies into three categories based on what happened to their core scarcity: Did it collapse, move, or strengthen? Asking that question helps us determine whether a company still controls the scarce resource its advantage was built on.

	1990s	2010s	2020s
What was scarce:	Discovery: Finding information in a sea of web pages	Infrastructure access: Provisioning, racking, owning services	Cognition: Routine analytical work performed by humans
New technology:	Google’s Index	Cloud infrastructure	AI large language models
What became abundant:	Search at zero marginal cost	Elastic compute on demand	Measurable cognitive work
Where scarcity moved:	Attention, distribution, traffic acquisition	Power, cooling, GPUs, grid capacity	Judgement, verification, coordination, liability

How is your investment approach suited to the environment of AI disruption?

Our approach is ideally suited to this environment because we conduct research at the individual company level. AI is not going to eliminate every competitive advantage, but it is forcing us to look more carefully at what makes a competitive advantage durable, and in many cases the answer has changed.

As active managers, the aggressive repricing of companies occurring as AI disruption deepens creates opportunities for us to identify businesses that are capable of sustaining and growing their competitive advantages throughout this period of transformative change.

What role can the Research Fund play in an investor’s portfolio?

By investing in the best ideas from each global research sector team, this U.S. large-cap growth fund seeks long-term growth of capital with volatility similar to its peers. The investment team is laser focused on discovering opportunities to both capitalize on and avoid technological disruption.

Through an investment process that seeks to minimize macro and style factors and maximize idiosyncratic stock selection, our analysts identify industry-leading companies with brand power, enduring business models, and strong competitive positioning. This design allows investors to benefit directly from the insights and expertise of Janus Henderson’s equity research team.