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Stock Picking is Now More Effective in AI Baskets

Published on June 5, 2026

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Dennis DeBusschere

Kevin Brocks

Sophia Wang

WEEKLY AI Update: Investors are increasingly focused on AI demand being potentially inflated by users testing out (ultimately unproductive) AI tools. Attention is shifting to use cases of AI that can be monetized. There are a couple practical implications. First, correlations within AI users have dropped – stock picking is now more effective.

As a first filter, we would look at the AI users expressing the most optimism over the outlook for their margins on their earnings calls. That group of stocks has performed well, bouncing +5% relative to the S&P 1500 after correlations dropped.

Second, AI baskets as a whole are less obvious longs while some constituents work and some don’t, favoring a rotation. Non-AI Cyclical laggards – Banks, Retail – could benefit longer-term given the economic backdrop (HERE), though short-term volatility is still dependent on the Strait of Hormuz, and now some financial conditions tightening after this morning’s hawkish jobs report. Today’s jobs report doesn’t change the longer-term outlook for financial conditions. That would take more evidence that the labor market is inflationary. The urate is still above the Fed’s estimate of the non-accelerating inflation rate of unemployment (4.2%), and wage growth remains in its downward trend. The 10yr above 4.5% is a headwind for non-AI cyclicals for now, but the supportive backdrop is intact longer-term.

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AI Users, defined as companies that gave specific use cases of AI tools in their earnings reports, have outperformed the S&P 1500 by +5% since correlations dropped.

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List below.

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The best performing industries within our AI usage basket* as correlations have dropped are Software, Tech Hardware, Communication Services, Media, and Financial Services. The worst are Consumer Durables, Banks, Materials, Energy, and Utilities. That is a mix of Cyclicals and Defensives, Deep vs Early Cyclicals, and companies perceived as having higher AI disruption risk. The industry blend is a good example of how stock picking is becoming more important.

*We created our AI usage basket by mining for commentary detailing specific use cases of AI in earnings transcripts. It is available on Bloomberg as MS22AI Index. Constituents are HERE.

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