The overlooked winners of the AI fear trade

While many investors are obsessed with AI’s mega-cap winners, value house Pzena Investment Management is looking in the opposite direction: toward companies everyone fears AI will destroy.

“We’re not chasing Nvidia to US$5 trillion; we look for where AI fear is overblown,” says Evan Fox, Portfolio Manager at Pzena.

One of those contrarian bets is Concentrix (NASDAQ: CNXC), a global call centre operator whose share price was crushed to five times earnings as markets assumed AI would make human customer support obsolete.

“What we've really seen is that people still want to reach out to humans — but with AI, the humans can be more efficient,” says Fox.

More than half of Concentrix’s clients are already using AI to cut wait times, with the technology helping human agents resolve queries faster and more accurately. 

Those clients are growing faster than those that aren’t - and with only a third of the industry currently outsourced, Fox argues AI is making outsourcing more attractive, not less.

“We like being the idiots buying the company that everyone thinks AI will disrupt,” he says. 

Fear is the fuel for value investing

This willingness to run toward fear rather than away from it has been Pzena’s hallmark for three decades. 

John Goetz, the co-Chief Investment Officer, points to history; across 17 periods of extreme volatility over the past 50 years, value stocks underperformed initially but delivered almost double the broader market’s return over the following five years.

He likens the best moments of value investing to being stuck in a dust storm – uncomfortable, but lucrative for those who can see through the chaos.

“You can’t wait to feel comfortable to make investments. By the time the dust settles, you’ve missed the biggest returns,” says Goetz.

But to navigate the dust and get to the other side requires deep, bottom-up research.

“Our job is to do the math. Which of these businesses are priced for bankruptcy but are actually sound? That’s where the mispriced fear lives,” he says.

Tariffs, geopolitics and mispriced pain

If there’s one dominant source of fear in 2025, it’s tariffs. But the Pzena Global Focused Value Fund is backing two stocks where value has been distorted by tariff-related sentiment, rather than by fundamentals.

“What does it look like if tariffs are this bad? And what does it look like if they mean-revert to something more sensible? The key is we have to look at this on a company-by-company basis and, as I like to call it, do the math,” says Goetz.

Groupe Michelin (EPA: ML)

The French tire-maker has faced a wall of bad news: sluggish European growth, labour issues, and post-COVID demand fears. Tariffs looked like the final nail in the coffin – but Pzena’s research found the opposite.

“Michelin sells more where they produce, unlike Korean and Chinese rivals who rely heavily on exports. Even in a bad-case scenario, their positioning is better than peers,” says Goetz.

Haverty Furniture Companies (NYSE: HVT)

This 100-year-old furniture retailer has been suffering from a 30-year low in US housing turnover, which has slowed sales. Tariff concerns compounded the sell-off, creating an opening for Pzena.

“This is a company with no debt and a tonne of cash. A few months ago, the cash on its balance sheet plus its real estate was worth about two-thirds of the market cap,” says Fox.

The tariff narrative itself, he argues, is overstated: the company sources from Vietnam and caters to upper-middle-class consumers, who are less sensitive to a price jump from $999 to $1,100 for a couch.

The small-cap comeback?

Within the set of value opportunities, Pzena says one of the biggest globally is in small-caps, which have lagged large-caps for 14 straight years, as shown below.

“One company – Nvidia – is now bigger than the entire Russell 2000. Small caps are at huge discounts to large caps, levels we’ve only seen in the 1970s Nifty Fifty era or the dot-com bubble,” says Fox.

Historically, the Russell 2000 has been 11–13% of the S&P 500 by market cap; today, it’s less than half that. This valuation gap is creating what Pzena calls a “rich universe” of opportunities for disciplined investors willing to endure volatility.

“We can buy companies at discounts we haven’t seen in decades, and that’s something we’re excited to take advantage of,” he says.

Beyond the obvious: Healthcare, groceries and… China

Pzena’s portfolios today look surprisingly diverse for a deep value manager. Goetz says that’s because fear has spread to unusual places:

• Healthcare: Fresenius (ETR: FRE), a German dialysis company, remains priced for post-COVID pain despite improving fundamentals.
• Consumer staples: UK grocer Sainsbury’s (LON: SBRY) is trading at depressed valuations due to competitive pricing wars.
• China: Despite geopolitical risks, less than 4% of China’s GDP now depends on US exports.

“Is China uninvestable because of the politics? That’s what many committees are asking. But absolute outflows create absolute opportunity,” says Goetz.

Keep your seatbelt on

Goetz concluded the webinar by stressing that risks in markets are being underappreciated. While investors are pumping up AI-related stocks on hope, he argued, the real opportunity lies in the dissipation of fear.

“The dark clouds are still all around us – tariffs, wars, healthcare fears. But that’s exactly why we’re excited. Volatility isn’t going away, and that’s where value thrives,” he says.

Fox agrees: “These periods of fear are when you really see the biggest dislocations. Having a team that’s been through the GFC, COVID, and now this, gives us the confidence to lean in.”

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