Hennion & Walsh Asset Management President and Chief Investment Officer Kevin Mahn outlined how artificial intelligence is shaping markets during an appearance on Varney & Co., sharing a cautious but constructive view on stocks and the economy. His remarks came as investors weigh growth from AI against worries about rates, inflation, and valuations.
Mahn discussed where he sees leadership in the market now, why earnings tied to AI remain a key driver, and how broader sectors might catch up as supply chains improve and consumer patterns shift. He also highlighted the need for discipline as investors sort winners from hype.
Background: From Rate Shocks to AI Tailwinds
Markets have cycled through sharp rate moves, uneven inflation data, and supply disruptions over the past few years. Through it all, large technology firms tied to AI infrastructure and software set the pace for major indexes. Investors tracked demand for chips, cloud capacity, and new business tools that promise faster workflows and lower costs.
At the same time, many areas outside big tech lagged. Energy prices swung, housing cooled at times under higher mortgage costs, and small caps faced tighter financing. That split raised questions about concentration risk and how long one segment could lead on its own.
Where the CIO Sees Durable Drivers
Mahn’s focus on AI reflects how its effects ripple across supply chains and budgets. Spending on data centers, networking gear, and advanced chips remains a bright spot. Software firms are racing to embed AI features into core products. The pitch to customers is simple: reduce manual steps, improve accuracy, and save time.
Yet earnings need to back up the promise. Investors are watching for clear revenue tied to AI features, not just announcements. Mahn pointed to the importance of cash generation and balance-sheet strength as screens for quality in this phase of the cycle.
- Leaders: chipmakers, cloud platforms, and select software providers.
- Watch items: power availability for data centers and supply capacity for advanced chips.
- Potential followers: industrials and services adopting AI to cut costs and lift margins.
Rotation Risk and Opportunity
The CIO also addressed rotation risks. If rates ease or earnings broaden, sectors tied to health care, select financials, and industrial automation could draw fresh interest. That shift would help narrow the gap between a handful of mega caps and the rest of the market.
However, if inflation readings stay sticky, policy makers may keep rates higher for longer. In that case, profitable growth names with pricing power could remain in favor. Mahn’s message stressed flexibility and the need to keep portfolios diversified across styles and sizes rather than betting on a single outcome.
Valuations, Hype, and the AI Adoption Curve
Parts of the market now trade at higher multiples based on AI hopes. The CIO’s analysis weighed how adoption unfolds over years, not months. Early gains often accrue to hardware and infrastructure. The next leg comes as enterprises integrate AI across sales, support, and operations.
That path is uneven. Regulatory reviews, data security, and model accuracy can slow rollouts. Companies that tie AI projects to measurable returns should stand out. Clear key performance indicators and phased deployments help limit costly missteps.
What Investors Should Watch Next
Mahn pointed to a few signposts that can guide expectations through the next several quarters.
- Earnings quality: look for revenue directly linked to AI products and usage, not one-off deals.
- Capex trends: monitor data center buildouts and power procurement by large providers.
- Productivity data: track whether firms report faster cycle times and lower support costs.
- Policy signals: watch central bank comments and inflation reports for rate direction.
The CIO’s take emphasized staying invested but selective. AI remains a strong engine for growth, yet the set of winners will change as adoption moves from pilots to day-to-day operations.
As markets weigh mixed economic signals, the balance between growth stories and valuation discipline looks set to define returns. Investors will be watching corporate guidance for proof that AI spending turns into durable cash flows. If that evidence broadens beyond mega caps, leadership could widen and reduce concentration risk. If not, the gap may persist. Either way, careful stock selection and patience appear to be the tools of choice in the months ahead.
