Which sector will be hammered on the markets this week? Investors are rushing to find out the companies whose business models are set to be completely disrupted by artificial intelligence, or at the very least those whose margins are likely to be severely eroded by new competition.

After software, the hunt has widened to wealth managers, data providers, property services firms and transport operators. The slightest announcement of a new feature from an AI start-up can send an entire sector tumbling.

The paradox of the current phase is that we have spent months debating the existence of an AI bubble, yet AI is now mowing down valuations like a combine harvester sweeping through a wheat field. At this stage, the companies concerned are not forecasting any decline in revenues or earnings. But markets, by definition, seek to anticipate the future and cannot simply take management teams at their word when they insist that AI represents a tremendous opportunity.

Take software, first in line for this purge. For years, investors adored software companies for their high margins and predictable cash flows. That is what justified their lofty valuations. As a MarketScreener analyst reminded me last week, French software company Dassault Systèmes was trading on 90 times earnings in 2021. That multiple has since fallen to 19. The sector's entire investment case has been called into question by AI.

After the sharp corrections of the past fortnight, the key question is whether the market will continue this hunt for losers or move into a more selective phase. We may, however, need to wait a little longer for an answer.

For now, the longest paragraph of this column must be devoted to public holidays and assorted breaks. Wall Street is closed today as the third Monday in February is a public holiday in the United States, Presidents' Day. Mainland Chinese markets will remain shut all week for Lunar New Year festivities, reopening only on Tuesday 24 February. Hong Kong will close for three days, from 17 to 19 February. 

On the macroeconomic front, investors will focus on the Federal Reserve minutes on Wednesday. On Friday, the United States will publish fourth-quarter GDP and December PCE inflation, two releases delayed by the 43-day government shutdown last autumn. A new partial shutdown began on Saturday, although it affects only the Department of Homeland Security.

On the corporate side, the earnings season continues. In the United States, three-quarters of S&P 500 companies have now reported. While the proportion beating expectations is slightly below historical averages, results have been solid and aggregate S&P 500 earnings are expected to rise by more than 10% for a fifth consecutive quarter. Walmart, Booking and Palo Alto will report this week. In Europe, investors await BAE Systems, Nestlé, Airbus, Air Liquide and Danone.

Other developments to watch as the week begins:

  • Marco Rubio struck a conciliatory tone on Saturday at the Munich Security Conference, while maintaining his criticism of America's European allies, a year after Vice-President JD Vance's incendiary speech.

  • Iran is reportedly prepared to consider compromises to secure a nuclear agreement if the United States agrees to discuss the lifting of sanctions. Iranian and US officials are due to meet in Geneva tomorrow for a second round of talks.

  • Peace negotiations between Ukraine and Russia will be organised by the United States in Geneva on Tuesday and Wednesday.

  • Donald Trump, the 47th President of the United States, will convene the Peace Council in Washington on Thursday. On Sunday, the US President said member states would announce USD 5 billion for reconstruction and humanitarian aid in Gaza.

In the Asia-Pacific region, markets were mixed. Japan slipped 0.2%, mainland China fell 1.2% and South Korea edged down 0.2%. By contrast, Hong Kong rose 0.5%, India added 0.2%, Taiwan rallied 1.6% and Australia gained 0.2%. European futures are trading higher.

Today's economic highlights:

On today's agenda: the quarterly GDP growth rate in Switzerland; the year-to-date FDI in China; the monthly industrial production in the Euro Area; housing starts in Canada; in the United States, the Fed Bowman speech. See the full calendar here.

  • GBP / USD: US$1.36
  • Gold: US$4,995.65
  • Crude Oil (BRENT): US$67.69
  • United States 10 years: 4.05%
  • BITCOIN: US$68,547.1

In corporate news:

  • Rio Tinto suspended work at its Simandou project in Guinea after a contractor employee was killed, with an investigation underway to prevent future incidents.
  • SSE had its BBB+ rating affirmed by Fitch, citing improved earnings visibility due to its five-year investment plan in regulated networks and renewables.
  • Rightmove reported that UK property asking prices held steady in February after a significant rise in January, marking the strongest start to a year since 2020.
  • Eni confirms a significant oil discovery in Angola’s Block 15/06, estimating approximately 500 million barrels in place.
  • BP PLC partners with Eni in the Angola oil discovery through their joint venture Azule Energy.
  • Saab signs a letter of intent with Ukrainian Defense Industry to enhance Ukraine's defense capabilities.
  • Ratos reports higher-than-expected adjusted EBITDA and proposes an increased ordinary dividend.
  • Eurogroup Laminations announces the termination of contractual arrangements between EMS and Fountainvest.
  • Kalmar's target price raised to €54 by Nordea and maintained at €45 by DNB Carnegie.
  • Warner Bros Discovery considers reopening sale talks with Paramount Skydance after receiving a revised offer.



See more news from UK listed companies here

Analyst Recommendations:

  • Kingfisher Plc: RBC Capital maintains its outperform rating and raises the target price from GBX 350 to GBX 375.
  • Marks & Spencer Group Plc: RBC Capital maintains its sector perform recommendation and raises the target price from GBX 350 to GBX 375.
  • Ashmore Group Plc: Barclays maintains its underweight recommendation and raises the target price from GBP 1.50 to GBP 1.80.
  • Glencore Plc: HSBC maintains its hold recommendation and reduces the target price from GBP 5.15 to GBP 5.
  • British American Tobacco P.l.c.: Citi maintains its buy recommendation and raises the target price from GBP 48.50 to GBP 49.
  • Unilever Plc: HSBC maintains its hold recommendation and raises the target price from GBP 48 to GBP 51.
  • Bellway P.l.c.: Jefferies maintains its buy recommendation and raises the target price from GBX 3461 to GBX 3463.
  • Molten Ventures Vct Plc: Jefferies maintains its buy recommendation and raises the target price from CAD 99 to CAD 112.
  • Anglo American Plc: Jefferies maintains its buy recommendation and raises the target price from GBX 3700 to GBX 4200.
  • Rio Tinto Plc: Jefferies maintains its hold recommendation and raises the target price from GBX 5700 to GBX 7000.