Tesco‘s (LSE:TSCO) one of the FTSE 100’s most defensive stocks. But will it offer shareholders protection if the rise of artificial intelligence (AI) sends share prices cratering?
Realistically, I think investors hoping the stock won’t go down are likely to be disappointed. Despite this, the company has some important characteristics that could make it less vulnerable than most.
What AI can’t do
It’s fair to say we don’t exactly know what AI will and won’t be able to do. Or at the very least, there’s currently significant disagreement about what it means for certain industries – especially software.
Investing well is about sticking to industries that are predictable. And while this might reasonably mean different things for different people, there are some plausible candidates for most investors.
The grocery industry is one where AI isn’t likely to bring about much change. Agentic agents aren’t likely to remove people’s need to consume food or change how they go about buying it.
That makes the supermarket industry relatively resilient. And Tesco’s the one UK company I think has some meaningful advantages over competitors.
Tesco’s unique strength
There’s a lot to dislike about the supermarket industry. Consumers tend to care mostly about price and they can easily switch from one retailer to another pretty much whenever they want.
This creates big challenges for businesses looking to develop durable competitive strength. But Tesco’s size and scale gives it some unique and extremely valuable advantages over competitors.
One of the most obvious is its negotiating position with suppliers. Tesco can offer consumer products firms access to a huge customer base and that puts it in a position to ask for lower prices.
In an industry where offering value’s crucial, having the lowest costs is a huge advantage. And I don’t think competitors are going to match Tesco’s scale any time soon, regardless of AI.
Nothing’s immune
There’s a very clear way in which the rise of AI could lead to a stock market crash. In fact, it might even be on the way. If agentic AI replaces white-collar workers, consumer spending will fall. That accounts for a big part of the UK economy (the same’s true in the US) and that will lead to lower corporate profits.
Will Tesco be immune in a defensive sector? I don’t think so – people won’t stop eating, but they might well find ways to spend less and that would be likely to have an effect on the firm’s profits.
In that situation, I don’t see how share prices can hold up at their current levels. But while I think Tesco won’t escape entirely, the underlying business might well be more resilient than most. It could be one to consider but don’t assume it has built-in crash immunity.
A stock to buy?
Tesco’s big advantage is its scale and I don’t think AI is a significant threat to this. But its big weakness is that it operates in a price-sensitive industry where switching costs are low.
The big question for investors is whether they can find the same strengths elsewhere without the same challenges. I think they can – and that’s where I’m looking to invest at the moment.
