Josh Brown says a new AI trade is emerging and this 'Best Stock' is benefitting

Travelers (TRV) is highlighted as an AI beneficiary, with management citing a 21% jump in Q4 2025 underwriting income from AI-driven efficiency and an AI Claim Assistant now handling auto damage calls. Net income rose from $2.7B in FY2020 to $6.3B in FY2025, diluted EPS increased from $10.52 to $27.43, and the quarterly dividend was lifted 14% to $1.25 per share alongside $5.2B remaining in buybacks. Technically, the stock is holding above its 200-day moving average near $289 and is trading around $303, with a breakout above $308-$310 seen as the next catalyst.

Analysis

The market is likely rotating from “AI as capital expenditure” to “AI as operating leverage.” That matters because the second trade has a very different earnings profile: insurers, banks, software distributors, and business services can show margin expansion without needing the market to keep underwriting a hardware boom. TRV is interesting because it is proving AI can compress expense ratios in a traditionally slow-moving, data-heavy workflow business, which makes the upside more durable than a purely sentiment-driven rerate.

The second-order effect is that if AI-driven productivity becomes a credible driver of EBITDA/EPS across old-economy compounders, leadership can broaden even as the high-multiple AI supply chain cools. That creates a relative-value tailwind for profitable financials and cash-generative industrials with low AI optionality priced in, while pure-enabler names may face multiple compression if the market begins discounting slower incremental returns on capex. In that regime, capital returns become more important: buybacks and dividend growth act as a floor when growth enthusiasm fades.

The key risk is implementation slippage. If management teams talk up AI but do not convert it into measurable loss-ratio, expense-ratio, or productivity improvements within 1-2 quarters, the market will stop awarding “AI premium” and revert to normal quality multiples. For TRV specifically, the main threat is not technical support; it is a deterioration in catastrophe experience or investment income momentum that offsets operating efficiency and keeps the story in the “good insurer” bucket instead of a true compounder rerate.

Contrarian take: the consensus may be underestimating how quickly AI spend migrates from vendors to customers’ P&Ls, but also overestimating how broad the winner set will be. Most companies will adopt AI without visible earnings uplift; the market will likely reward only the names where AI is tied to a clean, auditable metric. TRV fits that template better than most because the payoff is observable in underwriting economics, which should support a steadier re-rating path rather than a one-time pop.

Key Decisions for Investors

• Long TRV on a breakout above $310 with a 3-6 month horizon; use a close below the 200-day near $289 as the hard stop. Risk/reward favors a move into uncharted highs if AI-driven expense gains keep compounding.
• Buy TRV Jan-2027 call spreads to express the thesis that AI and capital returns create a multi-quarter rerating, while defining premium paid if the market stays rangebound.
• Pair trade: long TRV / short KIE for 2-4 months. The goal is to express idiosyncratic AI monetization and buyback support versus a weaker insurance basket that lacks the same operating leverage.
• Add a watchlist of other AI customer beneficiaries in cash-generative sectors; prioritize names where management can quantify productivity gains within 1-2 earnings cycles, and avoid “AI narrative” names without KPI disclosure.
• Fade overheated AI infrastructure winners on strength via relative shorts or collars if they remain extended, because the next leg may be earnings migration to users rather than additional multiple expansion for suppliers.