AI winners currently trading at a discount amid market volatility, Jefferies highlights 24 long-term winners

Jefferies identifies 24 U.S. companies it views as potentially undervalued amid AI-driven disruption fears, highlighting names across software, REITs, professional services and diversified financials (e.g., Airbnb, Microsoft, Snowflake). The bank notes one-month realized correlation among S&P 500 stocks is at multi‑year lows and that sectors including REITs, software, professional services, diversified financials and insurance have lagged the index by 10%+ over six months, arguing many firms possess proprietary data, regulatory/security moats and scale that could make valuations compelling if AI adoption proves accretive. Analysts stress it is early in the AI cycle and caution there will be casualties, but contend investor sentiment has unfairly penalized several durable franchises.

Analysis

Market structure: AI re-rating is bifurcating the market—scale/data/moat owners (MSFT, META, SNOW, NOW, PANW, OKTA) stand to gain pricing power and higher SaaS gross margins, while mid‑cap software, REITs and broker/insurance services face demand erosion and multiple compression (Jefferies notes >10% relative underperformance). Flow dynamics favor mega‑cap liquidity and lower realized correlation (near 15‑year lows), creating dispersion and idiosyncratic alpha opportunities; demand for data‑center power and GPUs lifts energy/copper and semicap chains indirectly.

Risk assessment: Tail risks include rapid regulatory clampdowns (EU/US AI rules within 30–180 days), a major data breach triggering revenue contraction, or GPU supply shocks that raise costs 20–40% for cloud vendors. Immediate (days) moves will follow earnings/AI announcements; 1–6 months sees flow‑driven re-rating; 1–3 years captures structural AI adoption and potential cannibalization of legacy revenues. Hidden dependencies: enterprise deal cadences, hyperscaler pass‑through pricing, and contract termination clauses can cause step changes in revenue recognition.

Trade implications: Favor concentrated longs in large moats (MSFT, SNOW, NOW, PANW, META) sized 1–3% each with 6–12 month horizons, and short cyclical/commodity‑exposed REITs or niche hardware names lacking proprietary data (e.g., KVHI) via ETFs or put spreads. Implement pair trades to isolate idiosyncratic risk (long SNOW vs short APP or SPOT) and use 3–6 month call spreads on MSFT/SNOW to exploit cheap implied vols versus realized dispersion. Rotate 5–10% from midcap software/REIT buckets into large‑cap AI leaders over next 4–8 weeks.

Contrarian angles: Consensus underestimates the value of proprietary, regulated datasets and enterprise switching costs—many listed "losers" trade at 15–30% discounts to justified DCFs and could re-rate if they secure exclusive data or large contracts. Reaction may be overdone in names with recurring revenue; however, crowded longs in mega‑caps increase systemic beta if rates spike >75bp. Historical parallel: 2003–2007 recovery showed durable SaaS winners consolidated share after initial dispersion; investors should watch for regulatory/antitrust catalysts that could unwind concentration.

Key Decisions for Investors

• Establish 1.5–3% long positions in MSFT, SNOW, and NOW (each) within 2 weeks; target 6–12 month hold, take profits at +30–40% and trim if any single name declines >20% from entry.
• Put on a pair trade: long SNOW (1.5%) vs short APP (1.5%) sized to neutralize market beta; hold 6–9 months and unwind if SNOW underperforms APP by >15% or after SNOW prints an enterprise deal increasing ARR guidance by >5%.
• Buy 3–6 month call spreads on MSFT and PANW (buy 25‑delta, sell 10‑delta higher strike) allocating 0.5–1% of portfolio each to cap premium; target 100–150% return on premium or stop at 50% loss.
• Reduce REIT and midcap software exposure by 5–10% (reallocate into the longs above) within 4 weeks; add protection by buying 3–6 month put spreads on VNQ sized to cover 50% of reduced position if REITs breach a 10% drawdown.
• Monitor regulatory calendar and NVIDIA/GPU supply reports over next 30–90 days; only increase size in winners if (a) enterprise AI deal flow improves ARR guidance by >3% or (b) GPU lead times shorten by >25%—otherwise cap incremental buys.