Separating AI winners from losers. 6 stocks that pass the test

As part of the first “digital native” generation, I thought I had a reasonable grasp of technology. Then AI arrived and immediately humbled me. Add in AI investing and it feels like the final level of a game – just when you think you understand, the final boss emerges.

Judging by some of the comments on Livewire, I am not the only one. Luckily, that’s where the experts come in.

So, when I had the chance to speak with Joshua Cummings, Portfolio Manager at Janus Henderson, I was keen to hear from someone who has literally watched this movie before. Cummings is familiar with the dotcom era, and that experience has shaped how he thinks about AI today.

He’s genuinely excited about the technology, but he’s also acutely aware about what history teaches us. The dotcom era taught him that the biggest themes produce the biggest winners, but also the biggest losers. Knowing the difference is his focus.

In this Q&A, he shares where he’s looking, what he’s avoiding, and the stocks he’s backing. 

AI is transformative, but not all beneficiaries will win

Artificial intelligence sits at the core of how Cummings thinks about investing today. He is avoiding the obvious crowded trades and sees real opportunity in sectors like insurance and drug discovery, where the impact is real, but not yet reflected in pricing. 

"Anything touching AI and datacentres is bound to hit flat spots."

The team's perspective is shaped by historical precedent. The dotcom era demonstrated that while transformative technologies can reshape the economy, they do not guarantee success for early market leaders.

"We know from history that many of today's anointed winners will not be. When we debate the AI theme internally, we're mindful that while most dotcom darlings faded into obscurity, the Internet itself has proved to be orders of magnitude more impactful than anyone could have imagined in 2000."

For Cummings, separating durable winners from narrative-driven ones demands genuine research. The winners from a technological revolution are rarely the same as the stocks that initially capture market attention, and identifying the difference drives his investment decisions.

A long-term mindset in a short-term market

Despite the overwhelming macro noise as of late, Cummings and the Janus Henderson team remain broadly constructive on risk assets and global economic growth. The war in Iran is on their radar, but it's not changing how they invest.

"In the short run, risk assets will fluctuate around the war in Iran. Over the long run, business models and leaders drive outcomes."

That long-term mindset drives their decision making - which stocks to own, how much risk to carry, and what to ignore. However, ignoring short-term volatility does not mean ignoring risk entirely.

An escalation of the Iran conflict, specifically the Strait of Hormuz remaining blocked longer than markets expect, is one concern. Stagflation is another:

"Stagflation is a concern given elevated debt/GDP across the OECD and many inputs that still look problematically undersupplied."

Cutting across all of it is what Cummings describes as political chaos and a lack of global leadership from the US; a structural concern that sits behind the others rather than alongside them.

Growth is driven by returns on capital

Cummings has a simple test for any growth stock: can the business generate returns high enough to justify reinvesting in itself?

"We believe that growth potential is a function of returns on capital."

Large markets and competitive advantages matter, but they are not enough on their own. The real question is whether the business model itself earns the right to keep growing. 

"But most important is that the business model itself generates returns high enough to warrant growth capital."

In an AI-saturated market, where capital is flowing toward scale and narrative rather than economic discipline, that filter is doing a lot of work. The team prioritises companies operating in large markets, with disruptive models and leadership teams financially aligned with shareholders.

"We look for large markets, disruptive business models, and leaders with economic skin in the game."

It is a framework designed to find businesses that don't just grow, but compound. 

Sector neutral, but not passive

The Janus Henderson Research equity strategies are explicitly sector neutral - a deliberate choice that keeps the focus on business quality rather than macro forecasting.

"Our seven sector teams often take meaningful industry-level bets."

These decisions are driven by deep industry knowledge and research, rather than macro predictions.

"We believe domain expertise matters in that decision, just not in guessing which sector is going to outperform next year."

Take technology as an example. Semiconductors and software have diverged meaningfully on fundamentals, and the team has been dynamic in their capital allocation to reflect that.

"Clients should expect our sector teams to dynamically allocate capital within sectors."

When fundamentals diverge within a sector, the expectation is active reallocation rather than static positioning.

Stock picks: where conviction is highest today

Cummings outlined where the team is finding opportunity today across both technology and more overlooked parts of the market.

Netflix (NASDAQ: NFLX) is one such example, with the team viewing the loss of Warner Bros. Discovery (NASDAQ: WBD) content as a significant positive.

"We think 'losing' WBD was a huge win for NFLX, and we added to that stock during the deal negotiation process when the stock was weak."

Alphabet (NASDAQ: GOOG) also stands out, particularly given its positioning in consumer AI.

"We really like GOOG's position in consumer AI and see forward estimates continuing to rise."

Select consumer staples are also showing signs of bottoming fundamentals, including Constellation Brands (NYSE: STZ), the company behind Modelo, Pacifico and Corona in the US.

"Pockets of consumer staples look washed out with bottoming fundamentals."

Home improvement and furnishings are also on the radar, a segment that has struggled for nearly four years since the post-COVID period, with interest rates the key remaining constraint.

"A goldilocks soft landing scenario would be great for this cohort."

Several long-term holdings remain core to the portfolio, including Spotify (NYSE: SPOT), Liberty Formula One (NASDAQ: FWONK) and Progressive Insurance (NYSE: PGR); positions the team continues to hold with conviction regardless of short-term price moves.

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