Buy the dip after wealth stocks get slammed on AI fears, Morgan Stanley says
The sell-off in financial services stocks on new fears over artificial intelligence has created a buying opportunity, according to Wall Street analysts. Several wealth management companies tumbled on Tuesday after tech platform Altruist announced a new AI-powered, tax planning tool on its AI platform, Hazel. LPL Financial closed more than 8% lower, Charles Schwab lost 7.4%, Raymond James Financial fell nearly 9% and Ameriprise Financial slumped about 6%. The stocks, except for Raymond James, continued to move lower on Wednesday. “[W]e think the market looked at this new AI tool and fears scope for other potential AI tools yet to come in wealth management, that could raise questions around sustainability of wealth mgmt fee streams (which have generally been quite stable) and competitive dynamics,” said Morgan Stanley analyst Michael Cyprys. LPLA YTD mountain LPL Financial year to date He called the sell-off “outsized and overdone.” Instead, brokers and wealth managers are well-placed to benefit from the productivity gains that could be unlocked by using AI. “This will be crucial especially as we see potential for a generational wealth transfer from baby boomer/silent generations for gen x/millennials/gen Z that will increase those who seek out advisory services via wealth mgmt,” Cyprys said in a note Wednesday. “Further, we see a bull market for advice approaching given aging populations, longevity trends and increased burden on the individual to prepare and manage through an extended retirement to ensure they don’t outlive their nest egg.” This should further cement the role of financial advisors, he said. In fact, many brokers are already making investments in AI, he said. Altruist’s offering is also available to advisory firms, he noted. Morgan Stanley prefers Schwab and LPL Financial, both of which Cyprys rates overweight. SCHW YTD mountain Charles Schwab year to date Deutsche Bank analyst Brian Bedell is similarly reinforcing his buy rating on Schwab. He called the selloff an “overreaction to market concerns about AI-driven disruption” and said AI isn’t a threat, but a significant opportunity. Schwab has already been integrating AI into its business, with more than 220 AI use cases in production, he said. “Looking ahead, SCHW expects AI to accelerate growth by enhancing its best-in-class client experience and enabling personalized outreach to a wider investor base, further strengthening its leadership position in the financial services industry,” Bedell wrote in a note Wednesday. For its part, TD Cowen doesn’t expect Altruist’s new AI tool to alter the near-term prospects for wealth managers. “We think the stocks can shrug off the risks tactically. Within our coverage, the pullbacks enhance the risk/rewards,” analyst Bill Katz said in a note Tuesday. “[H]owever, most of these stocks were bucking up against our prior 12M price targets, suggesting not enough ‘fear’ is fully embedded to more structurally step in.” He continues to favor Schwab, which he sees as a more immediate beneficiary of AI. Looking out over the next decade, the introduction of AI into wealth management feels more like an evolution than a mass disruption, said Citizens JMP analyst Devin Ryan. “Over multiple decades, it is obvious the industry will look different, and the role of the financial advisor may evolve meaningfully,” he said in a note on Tuesday. “But across our coverage today, wealth management does not stand out as a business that is obviously ripe for near-term disruption.” In fact, wealth management isn’t like other service sectors that could be more meaningfully affected, he added. “Bottom line, the headlines may seem jarring to some (or contrived by others), but we think the underlying reality remains far more measured,” Ryan wrote.
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