These bargain stocks will shine when AI trade falters, says Ariel's John Rogers

Ariel Investments founder John Rogers says investors are overlooking quality non-tech companies as AI-driven enthusiasm lifts tech stocks, and expects them to outperform if the AI trade turns. He cited consumer brands trading below 10x next year's earnings and named OneSpaWorld, Madison Square Garden Entertainment, Sphere Entertainment and J.M. Smucker; FactSet consensus targets imply 36%, 16%, 64% and 21% upside, respectively. The article reports year-to-date gains of about 11% for OneSpaWorld, 49% for Madison Square Garden, more than 8% for Sphere and 20% for Smucker.

Analysis

The useful signal is not that AI must fail, but that crowded growth leadership creates a potential source of relative-flow support for overlooked equities. A rotation would help only if these firms sustain earnings; an AI-led selloff caused by recession or tighter financial conditions could instead hurt their discretionary and operating-leverage exposures.

The “AI-proof” framing is too broad. OSW depends on cruise traffic, onboard spending and cruise-line relationships, so it is exposed to travel cycles. MSGE and SPHR monetize live experiences, but venues carry meaningful fixed-cost and event-execution exposure; SPHR is especially concentrated in one Las Vegas asset, making utilization and event economics more important than the AI narrative. SJM has the clearest defensive-consumption profile, but low valuation can also reflect competition, brand mix or input-cost pressure. These are different earnings risks, not one uniform value trade.

Near term, sentiment and positioning may support a catch-up move, but analyst price targets are not catalysts. Over 1–3 months, look for broadening market participation and company-level evidence: OSW onboard revenue per passenger, MSGE event/venue economics, SPHR utilization and operating performance, and SJM organic volume and gross-margin trends. Over 6–18 months, durable outperformance requires earnings delivery, not merely an AI multiple unwind. The thesis weakens if market breadth fails to broaden or these metrics/guidance deteriorate.

Key Decisions for Investors

• Prefer a staged, relative-value entry over buying all four as a single “AI hedge.” Start with SJM as the more defensive exposure; add only if volume and margin trends confirm that the low valuation is not signaling structural brand erosion.
• Treat OSW as a cyclical travel position, not a defensive one. Monitor cruise passenger capacity, onboard spending and partner concentration before adding; a weakening cruise-demand outlook would falsify the catch-up case even if AI leadership fades.
• Keep MSGE and SPHR smaller and catalyst-driven. For SPHR, require evidence of venue utilization and event-level economics; for MSGE, track venue/event performance. A broad market rotation alone is insufficient justification for either.
• Alert, not a directional trade: watch for sustained improvement in equal-weight versus cap-weighted index performance and value-versus-growth breadth over the next 1–3 months. If breadth does not improve, avoid assuming capital will rotate automatically from AI leaders into these names.