The ‘Great AI Sorting’

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Hello Peter Anthony Hovis,

The ‘Great AI Sorting’

The global markets were quiet on Monday, as major financial hubs from New York to Shanghai paused for holidays. With the U.S. observing Presidents’ Day and mainland China celebrating the Lunar New Year.

Stocks and bonds saw only marginal movement in futures, but the sentiment has improved since Friday’s benign U.S. inflation data, which showed core prices retreating to 2.4%, the lowest level since early 2021.

This “cooling” effect has solidified the narrative that the Federal Reserve has its long war on prices under control, and it may pave the way for a rate cut later this year.

As Andrea Gabellone, head of global equities at KBC Securities, noted:

“The backdrop for equities is positive post-CPI. At the same time, there could be more dispersion ahead as sentiment around key AI-exposed sectors is still very critical.”

Andrea Gabellone, head of global equities at KBC Securities (Photo: L’Echo)

While the macro-environment smiled on the bulls, a more localized storm was brewing in the tech sector.

The initial “AI euphoria” that defined much of the previous years has begun to give way to a “Great Sorting.”

Investors are no longer just buying anything with a neural network; they are scrutinizing which business models will be cannibalized by the very technology they once championed. This shift was evident as Nasdaq 100 futures dipped 0.2%, reflecting a lingering hangover from a week where software and services saw significant sell-offs.

A team at JPMorgan Chase & Co., led by Mislav Matejka, has notably urged caution regarding companies at risk of AI “cannibalization,” which is causing a growing divergence in the market.

To capitalize on this, firms like Goldman Sachs have even launched specialized “long-short” baskets, where they bet on the AI winners while shorting the workflows that the technology is expected to replace.

Despite the tech-induced jitters, the broader market remains anchored by fundamental strength. Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan, shared a grounded perspective on the current corporate landscape:

“When you look at the current earnings season, the companies are showing 13% of growth. Overall, this is the reason why we continue to be positive on the S&P.”

Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan (Photo: Bloomberg)

Across the Atlantic, Europe’s Stoxx 600 managed a modest 0.1% gain, led by a 4.8% surge in NatWest Group Plc following a bullish price target revision from Citigroup.

Meanwhile, in the commodities space, gold hovered near the psychologically significant $5,000 mark as traders locked in profits from recent highs, and oil prices ticked upward amidst persistent geopolitical tensions in the Middle East.

As the week unfolds, the silence of yesterday’s holiday session will soon be broken by a flurry of data. Investors are bracing for today’s ADP private payrolls and Wednesday’s Fed minutes, which would offer some clues that might refine the timeline for the first interest rate cut of 2026. On Friday, we’ll get an inflation report.

This Company Is Poised To See Big Earnings Growth

Today’s Stock Pick: Loar Holdings, Inc. (LOAR)

In the world of aerospace and defense, Loar Holdings is basically the master of the “niche and necessary.”

They don’t build the planes themselves; instead, they focus on the highly engineered, specialized components that those planes can’t fly without. Think of things like specialized seat belt airbags, water purification systems, fire barriers, and temperature sensors.

These aren’t just off-the-shelf parts.

About 85% of what they sell is proprietary, meaning they own the intellectual property and are often the only ones who make that specific part.

This kind of a moat has reflected its strong growth since 2012.

(Source: Loar Holdings)

The graphic ended at 2023, but the growth has been robust from 2024 to 2026, as shown in the graphic below:

(Source: MacroTrends)

What makes Loar unique is that it focuses on niche companies that make mission-critical, highly engineered solutions with high-intellectual property content.

Meaning?

It is tough for outside competitors to enter the industry. Its platforms include commercial, business jet and general aviation, and defense end markets.

(Source: Loar Holdings)

All in all, Loar offers over 15,000 parts for aircrafts. For example, a single commercial jet can use over 15 parts from Loar. These parts are often IP-heavy and require a depth of operational expertise.

So, once Loar products meet time and cost-intensive specification processes, they are basically locked in for the long term.

Lastly, aftermarket services for these parts are wildly lucrative with high margins.

(Source: Loar Holdings)

Now, the company has grown rapidly over the years because it mastered the art of acquiring specialized suppliers in a fragmented market. There have been multiple acquisitions in total since 2012. Once acquired, Loar can leverage its loyal blue-chip customer base by cross-selling acquired products to them.

The graphic below was from Loar’s latest investor presentation in 2024, but the company already made two acquisitions in December 2025 (LMB Fans & Motors) and January 2026 (Harper Engineering Company).

(Source: Loar Holdings)

All in all, Loar operates in a market with attractive economics. The company expects its sales to grow ~11% this year, while net income is projected to grow slightly faster at ~14%. The company expects to deliver an adjusted EPS of about $1.

Bottom line: Loar Holdings is still a relatively new public company (it went IPO in 2024), so it is not as covered as other companies in the stock market. It won’t post phenomenal growth like a technology company, but it is a steady grower.

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