The Disruption of Giant Companies Goes Beyond Flashy AI

This is The Conclusion from today’s Morning Synopsis, which you can register to receive in your inbox every morning along with:

Traditional wisdom indicates that artificial intelligence is causing significant disruption at large publicly traded companies.

And you wouldn’t be incorrect in investing in that prevailing idea.

Why else does Nvidia’s (NVDA) stock price refuse to drop for any long period of time? The company’s cutting-edge generative AI chips are highly sought after by deep-pocketed companies driving global disruption.

Why are layoffs spreading through Big Tech companies such as Alphabet (GOOG, GOOGL) and Amazon (AMZN)? Executives are readjusting their cost structures to reinvest in AI, which they believe is required to eliminate their less-nimble competitors.

But there is much more disruption taking place in corporate America than AI running wild and altering the traditional methods of doing business.

If you align with the disruptors, you have the potential to generate wealth over time. Conversely, if you fail to identify the disrupted, it’s likely to end badly for your portfolio, period.

I want all of you to generate wealth, not watch it vanish, so here are a few examples to use as a guide when evaluating your own portfolio for disruptors and those being disrupted:

Big media

Powerful Disney (DIS) recently reiterated the blurring lines in media consumption and why it’s likely to be a winner over time.

Last Wednesday, in a brilliant move, the company partnered with Epic Games for a new digital ecosystem. Digital ecosystems are only expected to become more important in the years ahead, and Disney recognizes this. Why do you think Apple (AAPL) and Meta (META) are fully committed to virtual and augmented reality?

SHANGHAI, CHINA - APRIL 28, 2023 - Disney's classic ip Mickey Mouse is seen at an outdoor square in Shanghai, China, April 28, 2023. It is reported that this is a limited time event held by Sihe Bay and Disney official: SHANGHAI, CHINA - APRIL 28, 2023 - Disney's classic ip Mickey Mouse is seen at an outdoor square in Shanghai, China, April 28, 2023. It is reported that this is a limited time event held by Sihe Bay and Disney official:

Disney’s classic IP Mickey Mouse is seen at an outdoor square in Shanghai, China, on April 28, 2023. (CFOTO/Future Publishing via Getty Images) (Future Publishing via Getty Images)

With this announcement, Disney likely has the people at Electronic Arts (EA) anxious. Comcast (CMCSA) executives are probably wondering why they didn’t acquire EA last year, as was rumored.

Couple that with Disney’s new streaming sports partnership with Fox (FOXA) and Warner Bros. Discovery (WBD), and the company has set the stage for a decade of disrupting rivals in media.

For example, what does this new streaming deal mean for Paramount (PARA), which has a lucrative NFL deal through 2032? You can learn more about this disruption in my Yahoo Finance Live interview with Paramount CEO Bob Bakish.

Bottom line: AI is not a significant factor in this major media disruption; it’s simply good old-fashioned structural industry changes.

Legacy tech

PayPal’s (PYPL) earnings this week reaffirmed the view among many on the Street that it’s a legacy technology company facing serious disruption, and new CEO Alex Chriss faces a challenging task to reinvigorate investor interest.

As Evercore ISI analyst David Togut wrote: “PayPal continues to confront the dual challenges of market share and customer loss in its branded PayPal wallet business and negative mix shift toward its high-growth, low-take-rate payments platform, Braintree.”

Who is disrupting PayPal? It might be Stripe, Visa (V), American Express (AXP), Apple Pay, and Google Pay. Yet, why are people hesitant to use PayPal and possibly even Venmo, and what does this mean for PayPal investors who have endured a 28% stock price decline in the past year?

I don’t know, but it’s all disruption that may worsen before it improves for the well-established payments behemoth.

Bottom line: PayPal’s biggest issue also isn’t an AI one.

New tech

What an absolutely terrible quarter and conference call for Snap (SNAP) and CEO Evan Spiegel this week.

The stock deserved to be hammered by 34% on Wednesday, as it’s another earnings period in which Snap’s executive team seems to be out to lunch on the mood among its investors.

But this catastrophe says a lot about the momentum of power for Meta, TikTok, and even Elon Musk’s X, formerly known as Twitter. These three platforms are gaining strength every single day, while Snap appears to be heading down a path of irrelevance amid intense disruption.

For instance, Meta is so back in its stride that it’s paying out a dividend for the first time, whereas Snap is handing out pink slips again to 10% of its workforce.

One year from now, Snap’s story is probably not going to be pretty as its rivals get more entrenched in their winning ways. Blame disruption.

Bottom line: There’s a bit of AI disruption in this case, but it’s not the dominant factor.

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Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.

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