My ISA hasn’t performed that well this week. It started with a sell-off of software names on Tuesday (3 February) — that was fine as I was quite light on them — but on Wednesday the sell-off moved to hardware.
What was behind it? It’s all about the notion that AI will make many companies, especially in the software space, redundant. And that’s carried through a little to hardware.
It’s all very nuanced and, quite frankly, every company needs to be assessed on a case by case basis. One business that has long been under the cosh from AI is Pinterest (NYSE:PINS).
The worries are simple. If AI can suggest ideas, products and content directly, some investors fear people will have less reason to use a platform like Pinterest in the first place.
There are also concerns that bigger tech companies, armed with powerful AI ad tools, could make it harder for Pinterest to attract advertisers or charge premium rates.
Combined with slowing user growth in some markets, it helps explain why the shares have struggled.
How we got here
Like many of its peers, AI has helped Pinterest build in recent years. It has improved efficiency in the back office while improving the relevancy of search results. You’ll also notice that a lot of the content on the site is already AI-generated.
And while that drove the stock higher in the early part of 2025, broader fears about AI super apps pushed the stock lower in the second half of the year. It’s now down 50% from its highs.
The company is currently trading at around 10.8 times forward earnings despite offering earnings growth around 16%. This puts it at a 60% discount to the information technology sector.
But we’re in a strange position where the valuation actually isn’t the biggest issue. It’s whether AI is an existential threat to the business or whether it can continue bringing in millions of users and generating advertising revenue.
My hunch
I never invest on a hunch, but on this occasion I’m making an assumption about how durable the business really is.
To me, Pinterest has a very high-intent user base. People use it to plan an event, put together an outfit, or get ideas for redecorating a home.
What Pinterest offers is essentially a digital mood board. It lets users explore ideas, compare options and narrow down what they actually want before taking the next step.
Could an AI super app improve on this? I’m not sure it can in interface terms.
What feels more compelling is how Pinterest can use AI to improve its own product — making recommendations more relevant, surfacing ideas faster and better matching users with content and products they’re likely to act on.
This is not my normal data-heavy approach to investing. The stock is undeniably cheap, but I think there’s a misunderstanding about the durability of the business.
What’s more, there are still huge opportunities to monetise the user base outside of North America. It’s yet to do this despite being something of a legacy app.
Taking all this together, that’s why I think it’s worth considering.
