Analysts call it a “Buy.” We call it a warning sign.
Tom Yeung here with today’s Smart Money.
As the U.S.-Iran conflict continues to escalate, the investment world has become hyper-focused on how high oil prices can go.
Some analysts even predict that oil could rise to $100 or beyond if the conflict lasts longer than three weeks.
Now, we don’t know what will happen in energy markets past that horizon – in fact, no one does. All we can say is that there’s a long history of people wrongly estimating how conflicts in the Middle East will turn out.
In the meantime, we feel our time is better spent on analyzing things we can predict… like the world-changing transformations happening thanks to AI.
For the last few years, Eric has been monitoring AI’s growth toward artificial general intelligence (AGI) – the moment when artificial intelligence develops superhuman intelligence.
Superintelligent AI is already creeping into our lives, though it’s not been a single “aha” moment. Instead, AGI is like how OthersideAI CEO Matt Schumer described it in a now-viral blog post:
It’s like the moment you realize the water has been rising around you and is now at your chest.
For me, that moment began in 2025 when AI firms started using artificial intelligence to recursively improve themselves.
But everything began to fall into place only in the past several months.
With enough handholding, frontier models were becoming good enough to re-create the quantitative financial models I had developed several years ago.
Now, I can simply give Claude Code enough financial data, ask it to build something, and sit back as it runs off by itself to write thousands of lines of code.
So today, I’d like to discuss these important AI advancements and how they’re giving us a taste of what’s to come.
But more specifically, I want to bring to your attention a streaming giant that accounted for over 95 billion hours of viewing time in the first half of 2025. Alarmingly, even this household name is vulnerable to AI’s disruption.
Then, I’ll show you how to find the companies that can withstand the future of AI…
AI’s Growing Takeover
AI is becoming less like a robotic mecha-suit that needs a human pilot and more like a fully autonomous machine that can replace entire teams of analysts and coders.
The same is proving true for virtually every knowledge-based industry…
- Law. Last month, veteran lawyer and former litigator Chad Atlas described how it’s now possible to upload entire contracts into Claude Cowork for review.
- Healthcare. Cancer-detecting AI is becoming as good or even better than human doctors, according to numerous studies.Some experts like physician-scientist Eric Topol are now essentially calling for mandatory AI incorporation in mammogram screenings.
- Accounting. AI tools are replacing entry-level audit roles, according to Carl Mayes, vice president at the American Institute of Certified Public Accountants (AICPA), the professional organization overseeing public accountants.
This is why we’ve seen so many software-as-a-service (SaaS) companies get pummeled in the past several weeks. Investors are suddenly faced with the real-life version of what futurists have warned about for years.
And one popular streaming service giant is particularly susceptible to AI competition. Many analysts rate this stock a “Buy,” so we want to warn you about this household name ahead of time…
This “Buy”-Rated Stock Is a “Sell” in Disguise
I’m talking about Netflix Inc. (NFLX).
Shares of the online streaming firm shot up almost 30% last week after dropping its bid to buy Warner Bros Discovery Inc. (WBD). Netflix’s stock price is now back to where it was in early 2025, valuing the streaming firm at 38X earnings – twice as high as the figure achieved by Walt Disney Co. (DIS) and right at its four-year average.
Investors clearly aren’t worried about the streaming company’s long-term ability to generate more profits. Neither are Wall Street analysts, which have 37 “Buy” ratings on the stock (compared to 13 “Holds”).
However, Netflix operates a very similar model virtually every other consumer-focused SaaS company. The firm creates digital products (in this case, movies and shows) and delivers them to users on a subscription basis. These monthly charges are cancelable at any point.
That makes Netflix extremely sensitive to AI competition.
Think about it. Their moat comes from making engaging, high-quality video content that users happily pay $17.99 a month to access.
What happens when people on their laptops can create feature-length films using AI? At that point, it’s hard to imagine Netflix charging much of a premium for its human-acted content.
“But AI video is slop,” some might counter. “And what about scriptwriting, acting, and consistency?”
Here’s where some imagination is needed.
Video AI models today consistently make errors and are limited in length. But that’s also what many said about early language and image models. And look where those models are today.
Seedance 2.0, the Chinese-owned AI video generator that created a viral, buggy clip of Jackie Chan fighting Jet Li, will be replaced in short order by an even better model.
An AI scene by Seedance 2.0
Besides, these AI firms have access to virtually every movie and TV show ever made… not to mention all the millions of professional reviews and billions of online comments people make about the quality of these shows.
Once enough computing power is installed, there’s nothing stopping an AI from generating a near-infinite number of TV show scripts, turning the top few into test screenplays, acting the whole film with deep-faked actors (or its own character creations), and then iterating on the top versions until it creates a feature-length film that its own AI review process rates as nearly perfect.
That’s the future Netflix faces.
So, instead of potentially getting burned by an investment that could follow the same volatile path as SaaS companies, I urge investors to begin looking elsewhere.
How to Build a Portfolio AI Can’t Disrupt
Hundreds of other firms like Netflix could face the same future, not to mention the millions of employees of these companies who may soon find themselves redundant.
Could AI eventually build entire e-commerce businesses from scratch?
Run a full-scale telehealth business?
Create live TV news?
I believe the answer is “yes” to all the above… and more. That’s because AI models can already do most of the work.
Furthermore, I see only three key factors missing from turning current-generation AI into full-fledged companies…
- Model quality and reliability, which AI companies are rapidly improving.
- Computing power, which Big Tech is adding as fast as they can
- Regulation, which the U.S. government is taking a light-touch approach to.
That’s why Eric and I have been talking so incessantly about the strong companies that can withstand significant disruptions of artificial intelligence… and eventually AGI.
These firms are not always popular, nor are they always in fast-growing industries.
Nevertheless, we believe the underappreciated firms in the Fry’s Investment Report portfolio are immune to any near-term effects from AI.
No matter how “boring” Eric’s energy, basic materials, and even consumer sector holdings may seem… they’re not going to be replaced anytime soon by AI.
And that’s the whole point.
Click here for more information on how to bulk up your portfolio and survive the AI Revolution.
Until next time,
Thomas Yeung
Market Analyst, InvestorPlace
