Our take on the Citrini AI downside scenario

The AI conversation is changing. As has often been the case throughout history, major technological shifts provoke both excitement and anxiety, with sentiment oscillating over time. Since ChatGPT’s launch in late 2022, enthusiasm around AI has dominated the conversation, while concern lingered at the margins. More recently, however, that optimism has begun to give way to heightened anxiety and increasingly bleak narratives about AI’s impact on work, productivity, and economic outcomes.

The Artificial Intelligence (AI) report from Citrini, a technology‑focused research firm, made waves in the market, and it highlights real risks. AI is moving quickly, and the scenario outlined points to accelerated creative disruption, pressure on certain business models, and a widening gap between winners and losers. We are already seeing this disruption as companies reassess the trade‑off between AI efficiency and human labor costs.

Importantly, the authors were clear that this represents a negative scenario, not necessarily the most likely outcome, but a framework to think through potential outlier events as adoption accelerates.

At the same time, one of the most important lessons in investing is this: if you invest only for the worst‑case scenario, you will never be invested.

A useful reminder is COVID. Had someone told you in advance that a global pandemic was coming, millions would die, and the economy would shut down, moving entirely to cash would have felt prudent. Yet after the shortest recession in history and a sharp market decline, equities went on to deliver one of the strongest rallies ever. The lesson is not to ignore risk, but to recognize that companies, policymakers, and markets often adapt in ways that are difficult to anticipate.

History offers a similar perspective. Blockbuster ultimately gave way to Netflix. We saw brick‑and‑mortar retail shrank, with high‑profile closures such as Toys “R” Us. But at the same time, Amazon grew into one of the largest private employers in the U.S., and entirely new industries and job categories emerged that were difficult to foresee at the outset, including areas such as cybersecurity, cloud infrastructure, and digital logistics. Disruption creates real dislocation, but it also creates new leaders and new opportunities.

Recent research from the Federal Reserve Bank of Dallas reinforces this more nuanced view. Their work shows that AI can either automate or augment labor depending on how it is deployed. When tasks are automated, jobs are often eliminated. In other cases, AI augments work by removing routine tasks and allowing companies and workers to focus on higher‑value activities. In other words, the same technology that creates risk in one area can create opportunity in another.

It is also important not to view AI outcomes as binary. Even within software, the picture is evolving. Anthropic recently emphasized that their goal is not to displace software providers, but to partner with and enhance them – integrating AI into existing platforms rather than simply replacing them. That does not eliminate disruption risk, but it highlights that AI adoption will play out unevenly across companies and platforms, resulting in varied outcomes rather than a single, binary result.

From a positioning standpoint, this environment argues for going back to the basics:

• Diversification is working again, particularly as the gap between winners and losers widens.
• The investing playbook is different from the past decade. This is no longer a narrow, one‑trade market.
• Broader exposure matters, with leadership expanding beyond mega‑cap technology to small caps, mid caps, and international stocks as investors focus on improving profit trends and former laggards. At the same time, the opportunity set across sectors is widening. Industrials – where we remain overweight – are benefiting from AI-related capital spending, while energy and materials are seeing renewed interest amid improving demand and a reassessment after a prolonged period of neglect.
• Fixed income matters, continuing to provide ballast during periods of equity volatility.

AI disruption is real and moving quickly. It creates meaningful risks, but also meaningful opportunities. We will continue to follow the weight of the evidence, remain disciplined in our process, and adjust positioning as that evidence evolves.