Investors Pivot to Hard Assets Amid AI Disruption Concerns

Analysts said capital is moving toward companies tied to physical assets and essential demand, such as energy and infrastructure.

Steel components at HCC, a company that uses parts to make combines, at a factory in Mendota, Ill., in this file photo. Vincent Alban/Reuters

Concerns that artificial intelligence (AI) could make traditional digital service models obsolete have accelerated a market rotation in 2026, with investors trimming exposure to enterprise software and other digital service firms and shifting into hard assets and low obsolescence stocks, including energy, materials, and industrial companies.

Some analysts say the shift reflects a broader market repricing that could reorder value across sectors and persist as structural economic challenges remain.

Minutes from the policy-making Federal Open Market Committee released on Feb. 18 underscored divisions within the Federal Reserve, adding to uncertainty.

David Russell, global head of market strategy at TradeStation, said policymakers are split on inflation and interest-rate policy, struggling to reach consensus, making the outlook less predictable. Such divisions cloud the path of monetary policy for the rest of the year and tend to reduce appetite for riskier assets, including unprofitable digital companies.

Hard Asset Rally

Market performance reflects the rotation.

Cathie Wood’s ARK Innovation ETF, which holds digital service companies, has, for example, fallen by 9.72 percent year to date. Adobe is down by 25 percent, Salesforce by 30 percent, and Atlassian by nearly 50 percent. The Nasdaq Composite, home to many high-growth digital firms, is down by 3 percent year to date after years of strong gains.

Meanwhile, hard-asset sectors have advanced. Vanguard Materials Index Fund ETF Shares is up by 15 percent year to date, the State Street Energy Select Sector SPDR ETF has gained by 20 percent, and the State Street Utilities Select Sector SPDR ETF has risen by 22 percent. Caterpillar is up by 33 percent, Deere & Company by 29 percent, Honeywell International Inc. by 24 percent, and Boeing by 12 percent. The Dow Jones Industrial Average, which includes many traditional industrial companies, is up by 2.68 percent.

Michal Prywata, co-founder of Vertus, said investors are shifting to businesses that AI cannot easily replicate. He said capital is moving toward companies tied to physical assets and essential demand, such as energy and infrastructure, while service-heavy digital firms are being repriced amid uncertainty about AI’s disruptive reach.

“It’s real if people are unsure who AI disrupts or will disrupt most, so money moves into more physical type things like power/energy, materials, industrial infrastructure, and staples, while fee-based, people-heavy services get repriced,” he told The Epoch Times.

AI, which enables systems to perform cognitive tasks traditionally handled by humans, is often compared to the automation revolution. Unlike automation, which replaced manual labor, AI targets mental tasks, reshaping digital services and dividing companies into likely beneficiaries and those at risk of disruption.

For more than two years, Wall Street focused on companies viewed as AI winners, including Nvidia, AMD, and Oracle. Recently, attention has shifted to sectors vulnerable to disruption, such as enterprise software, real estate management, and investment services, reinforcing the move into hard assets.

Valuation Gaps

Valuation gaps highlight the divergence. Palantir, a software platform, trades at a forward price-to-earnings (P/E) ratio of 178 even after a pullback, while Applied Digital, a provider of digital infrastructure solutions for high-performance computing (HPC) and AI, trades at 526. Caterpillar’s forward P/E stands at 26, Deere & Company’s at around 22, and Honeywell’s at 18.

Phil Santoro, co-founder of Wilbur Labs, told The Epoch Times that the rotation reflects growing investor skepticism toward companies that overstate their AI credentials. He said markets are increasingly favoring businesses with durable competitive advantages that cannot be easily replicated through technology alone.

Eugenia Mykuliak, founder and executive director of B2PRIME Group, said the shift also reflects broader capital rotation. She noted that after rapid gains, technology sectors often cool as investors reassess profitability and weigh ongoing macroeconomic uncertainty.

“Investors are moving past the bold ‘energy’ of the AI topic and are now looking at the promise and profitability of such companies more objectively,” she told The Epoch Times.

Thomas Drury, co-founder and senior trading analyst at The Investors Centre, described the trend as a long-overdue repricing. He said higher capital intensity, uncertain payback periods, and reduced earnings visibility are compressing valuations in digital sectors while benefiting hard-asset industries.

A Continuing Trend

Drury said the repricing could continue due to elevated AI capital expenditures, uneven earnings distribution, and structurally higher interest rates favoring short-term cash flow and earnings revisions in non-digital sectors.

“If tech earnings accelerate again or if interest rates decline substantially, then this is merely a rotation, not a new market regime,” he told the Epoch Times.

Asset repricing is a normal feature of equity markets, in which prices revert to historical averages as investors reallocate capital across sectors rather than exiting equities altogether.

Santoro said the shift of investor interest from digital to hard assets resembles past technology cycles, arguing that long-term winners will be companies that use technology to solve practical, costly problems rather than rely solely on hype.

Niraj Jha, a senior logistics and operations leader with more than two decades of experience, said the hard assets trade could broaden but not uniformly. He said that as AI tools become commoditized, competitive advantage will depend more on execution, data integration, and operational depth.

“In that environment, some software companies with shallow integration may see prolonged multiple compression, while deeply embedded enterprise platforms could reaccelerate as they become the primary control planes for AI-driven decision making,” he told The Epoch Times.

Jha added that AI is likely to reorder value across sectors rather than permanently favor physical over digital businesses. Firms best positioned to translate AI capabilities into reliable real-world results, he said, will emerge as long-term winners.