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The FTSE 100 is often derided for being full of ‘boring’ shares like banks, miners and supermarkets. There’s a distinct lack of sexy tech stocks that sport higher valuations.
However, could AI become so disruptive that many Software-as-a-Service (SaaS) stocks lose their premium valuations? Many have historically traded on lofty multiples — 30 to 40 times earnings or higher — because investors price-in recurring growth and high margins. But AI could chip away at both ends.
From above, Big Tech is bundling AI into existing product suites like Microsoft Office, making it harder for smaller SaaS firms to justify charging for standalone tools.
From below, AI-native start-ups like Runway AI (media creation) show how a single model on cheap infrastructure can scale rapidly. In other words, the barriers to entry are collapsing.
What once required an entire SaaS company’s user interface may soon need a single AI agent.
Model risk
Might we already be seeing the start of this? Adobe stock is down 44% since February and trading at just 15 times next year’s earnings. Generative AI upstarts are squeezing Adobe from below with lower-priced creation tools.
Moreover, many software firms still charge on a per-seat licence. But if AI reduces headcount, then that model might break down. The result could be squeezed margins and slower growth (not a great recipe for lofty valuations).
Financial data and analytics giant London Stock Exchange Group (or LSEG as it’s known) is trading at just 20 times 2026’s forecast earnings, despite the FTSE 100 being at a record high. LSEG charges on a per-seat basis for some key products, but the release of Anthropic’s Claude for Financial Services has raised fears of disruption.
We’re at the stage now with every iteration of GPT or Claude that comes out…it’s multiples more capable than the previous generation. The market’s thinking: ‘Oh, wait, that challenges this business model‘.
Kunal Kothari, Aviva Investors.
Will boring become the new sexy?
Given all this, I think the FTSE 100 could quietly shine over the next decade because it’s full of companies with tangible assets that AI can’t disrupt. Many ‘boring’ Footsie stocks might suddenly look appealing when investors want a safe harbour and a steady stream of dividends.
Bunzl (LSE: BNZL) strikes me as a good example. The distribution and outsourcing company supplies cleaning products, safety equipment and food packaging. Many people use a Bunzl product every day without realising.
It’s difficult to imagine AI replacing that model. If anything, the technology will probably make Bunzl more efficient by improving forecasting and reducing waste.
In April, the firm reported a profit warning and suspended a £200m share buyback. Since then, the shares are down 26%. Things could get worse if trading weakens further in the second half.
However, this pullback puts the stock on a forward price-to-earnings ratio of just 12.8, which is a significant discount to the past five years. There’s a well-supported 3.3% dividend yield too.
In theory, Bunzl could be threatened by Amazon Business, but the distributor has deep supplier relationships in specific categories. I think it will prove hard to dislodge.
Bunzl’s business may be boring, but it’s this type of dull reliability that could become more attractive to investors in the age of disruptive AI. As such, I think this cheap FTSE 100 stock is worth considering.
