Military tactics are like unto water; Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing.
Sun Tzu, The Art of War
Note: None of the material or content contained herein constitutes investment advice. It is solely for educational and informational purposes. Past performance is not an indicator of future performance.
One of the key considerations when analysing companies is how they respond to change. Change is a constant, sometimes fast and sometimes slow but constant. We develop beyond the “current” to the “next”. We discussed this in last week’s Sun Tzu-esday [May 5 + for paid subscribers here] in the example of Steve Jobs who realised that someone was eventually going to put a music player in a phone and the result would kill his, still young, revolutionary cash cow product, the Ipod. He didn’t hesitate and sacrificed his darling to remain relevant for the next phase of change.
WHY ARE YOU LAUGHING GRANDAD?
Today AI dominates the conversation in the investment industry. I was at a talk recently with one of the UK’s foremost hedge fund managers and the session was entitled, The Last Economy. The interviewer put it to the hedge fund manager that he was deeply worried about his children’s futures. What work could they get in a future with AI or, would there even be any work for them at all if AI and humanoid robots have taken over everything. It’s a fair question to ask and it’s a situation that needs to be monitored or it could run amok but history tells us that humans adapt to the new technology, not the other way around. One person at the session made the point that if he (in his 50’s) told his grandfather (a WW2 veteran) that he paid someone a living wage to stand over him at the gym (he would have to explain gyms) to offer him advice on how to lift things better, his grandfather would laugh at him.
OPPORTUNITIES SPRING FORTH
Since I entered university to now, whole new vibrant economies have developed around online advertising, influencing, smartphones, ecommerce, logistics, cloud etc. Technological advances have always had the same outcome, productivity has increased, life has gotten better for most and opportunities have expanded. In particular, the opportunity to do what you love and build a life around it has never been so possible as it is now. Musicians can use technology to bring their ideas to life and they can then distribute them to the world immediately on a variety of platforms. Movie makers only need a smartphone, some time and a vision to do the same. Even, global equity wonks can’t be stopped from setting up their soapbox substacks and blasting out their thoughts and feelings on the daily (ish) - they can even do it with edited videos, graphics, sound effects, jingles, etc. See, life is getting better. You’re welcome.
CELEBRATE OR ROTATE
For investors though, the question they should be asking is how are their investments shaping themselves to the nature of the ground before them? One of the major headlines out there is that CEO’s are letting people go at record rates, replacing them with AI. Investors have been generally reacting positively to this as a sign that costs will be cut and margins will expand. I would be very careful about celebrating a company for this, especially if it is all that they are doing.
Consider the typical office work environment. It is an environment of constraint, restriction and limitations. Budgets, cost management, hiring freezes, either/or decisions. Surpluses, like flakes of gold in muddy waters, need to be protected.
EXPLAIN IT TO ME LIKE I’M 5
I have yet to meet the person that doesn’t want more resource to put toward their job, to expand their responsibilities, to respond to issues quicker, to target new revenue channels, to enhance their current offering, to stave off the competition. That is what AI could be to organisations but removing the experienced, trained, dedicated person with AI will only create commercial stasis, business processes and offerings frozen in time. You need people to expand, enhance and improve. You need them to convey the culture of an organisation, it’s feelings on risk, it’s history. Large, mature, businesses will not hand over new products or initiatives to AI, it’s too risky - they can and have gone rogue in big ways (See recent PocketOS situation). Your people are your water and everyday they shape the business to the landscape being revealed. If you are invested in a company that is using AI to fire people to gain a short lived bump on the tape then you need to find other opportunities. That company has run out of ideas.
Don’t ask me, ask Trevor Noah.
My guess is, there will be a wave of rehiring in 9-12 months as these businesses realise they need experienced humans to supervise the AI and that they will inevitably start losing market share to the AI native competition.
For paid subscribers I include the below prompt to check your stocks for this trait. I use Gemini via the "=AI() function in Google Sheets and it returned this response for Klarna, a notable AI replacement story.
In the last six months, Klarna has maintained its strategy to reduce its workforce from 3,000 to 2,000 by 2030, a goal explicitly linked to AI automation and natural attrition. While the company previously cut approximately 700 roles due to AI, recent reports from early 2026 indicate a pivot to rehiring human agents via a flexible model following a decline in service quality.
During this same period, Klarna has aggressively pursued AI-led growth initiatives, including launching an AI-powered shopping assistant, developing internal productivity tools like Kiki, and using generative AI to reduce marketing costs by 25% while increasing campaign volume. The company also integrated payment options into Google's Gemini app and expanded its merchant network through partnerships with eBay and Walmart.
This dual approach of aggressive automation and product expansion is likely to lead to significant growth. By achieving a 152% increase in revenue per employee and maintaining profitability over four consecutive quarters, Klarna is successfully leveraging AI to improve margins and scale its market share, despite the operational challenges of replacing human labor.
