Disruption Risk in Investing: Why AI and Emerging Technologies Must Be Part of Every Stock Analysis
- Max Teh
- 2 days ago
- 5 min read
KEYPOINTS
🔑 Strong financials do not protect a business from disruption- always assess whether its core product can still remain relevant in the next 1-3 years.
🔑 AI and emerging technologies are reshaping entire workflows, often leading to pricing pressure, platform consolidation, or outright displacement.
🔑 Using a structured disruption-risk framework helps investors identify hidden downside risks before they appear in financial results.
Table of contents:
Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.
One of the most underestimated risks in investing today is AI-driven disruption.
On top of traditional frameworks like revenue growth, margins, valuation multiples, this important question should not be ignored:
Will this company’s core product still exist in the same form/ be able to maintain its dominance in the market 1–3 years from now?
This is why, in my checklist framework, I explicitly include a Disruption Risk Assessment under Fundamentals → Risks.
🧠 AI Disruption Risk: Why This Matters More Than Ever
Technological disruption is not new.
BlackBerry → disrupted by iPhones
Kodak → disrupted by digital cameras
Toys R Us → disrupted by digital entertainment
But what’s different today is speed and scope.
AI is not just improving existing products —it is collapsing entire categories of businesses.
Examples in recent years:
Chegg → displaced by AI tutors
Fiverr → partially replaced by AI tools
Traditional search workflows → increasingly bypassed by AI assistants
And this trend is accelerating.
⚠️ The Investor’s Blind Spot
The biggest mistake investors make is this:
They assume disruption will be gradual.
In reality, disruption often looks like:
Nothing happens
Growth slows slightly
Suddenly, demand collapses
By the time financials reflect the damage, the stock has already repriced.
🔍 My Disruption Risk Checklist
To systematically assess this, I use two structured prompts with various tools when analyzing any company:
Prompt 1: Core Product Obsolescence Risk
For companies which products and business models you are not yet familiar with, you can use a prompt structure similar to this on a reliable AI tool like ChatGPT:
(Question):
Is the company's core product at risk of becoming obsolete (or facing deceleration in revenue) due to emerging technologies (especially AI) within 3 months to 3 years?
(Request):
Score -10 to 10, where
-10 (High probability of core revenue being disrupted)
10 (Minimal disruption risks)
(Important):
score conservatively, because underestimating disruption risk is far more costly than overestimating it.
The response will usually give you a much better idea on the most pressing risks, and whether if further research for the company is worth pursuing or not.
Prompt 2: AI & Non-AI Disruption Assessment
If the response from Prompt 1 above yield a satisfactory result, for the next step, I would download the relevant company materials namely the latest:
Annual Report (10K)
Last 2 Quarterly Earnings materials (Presentation, 10Q, Transcripts, Announcement releases)
Last 2 Relevant Conference materials (Transcripts)
Proxy Statement (DEF14A)
and upload it into Notebooklm which provides more reliable information with less chances of hallucination as opposed to general AI tools like ChatGPT.
You can use a prompt structure similar to this:
Act as a prudent disruption risk analyst.
1) what do you think is the chance that AI & AI agents will disrupt this business on scale of 1-10? (10 being the most at risk)
1a) what are the efforts that the company has been putting into AI development / integration for its products & services line to increase its competitiveness in the market?
pls provide your ratings in 1-10 (10 being the best)
and provide 2 bullet points in a short sentence each to explain your score
2) I'm evaluating whether this co' is at risk of its core products or services being disrupted by current or emerging technological trends (outside of AI)
(past e.g., Toys R Us disrupted by iPads, newspapers by the internet, Kodak by digital photography)
(request): rate it 1-10 and provide some reasons to explain your score in bullet points format📊 What This Looks Like in Practice
A common mistake investors make is assuming that strong fundamentals = low risk.
But disruption does not care about margins.
Take Adobe as an example.
~90% Gross Margin
~30% Profit Margin
Trading at ~14x earnings
On paper, this looks like a high-quality, reasonably valued compounder.
But when we apply a disruption-risk lens, the picture changes.
⚠️ Where the Risk Lies
Adobe’s core Digital Media segment (Photoshop, Illustrator, Premiere Pro) is facing direct pressure from AI-native tools:
AI tools can generate designs, images, and videos faster and at near-zero marginal cost
Many of these tools are good enough for a large portion of users (especially non-professionals)
This creates a dangerous shift:
Users no longer need to learn complex tools —they can simply prompt an outcome.
🔍 Applying the Disruption Checklist
Using my framework:
Prompt 1 (Core Obsolescence Risk):→ Score: -3 to -5 (moderate concern)
Core product still relevant, but parts of the workflow are being replaced
Prompt 2:
AI Disruption Risk: 8/10
AI directly replaces core creative workflows
Lowers barrier to entry for competitors
AI Readiness (Adobe’s response): 7/10
Firefly and AI integrations are strong
But competing in an increasingly commoditized space
Non-AI Disruption Risk: 4/10
No major non-AI structural threats
🧠 Key Insight
This is not a case where Adobe disappears.
Instead, the risk is more subtle and more common:
The product survives, but its pricing power weakens.
Entry-level users may churn to cheaper AI tools
Professionals may stay, but growth slows
Margins may compress over time
🎯 Why This Matters for Investors
This is exactly the type of situation where:
Traditional metrics (high margins, strong cash flow)
❌ give a false sense of security
Disruption analysis
✅ reveals hidden downside risk
⚡ The Takeaway
A great business today can still be a risky investment if its core value proposition is being challenged.
And in many cases, the market won’t wait for the financials to show it.
🎯 How I Apply This in Portfolio Construction
As part of my framework:
I minimize exposure to companies with high disruption risk
I avoid completely those where:
Core product = easily replaceable by AI
Weak AI strategy / slow adaptation
I prefer companies where:
AI is an enabler, not a threat
Products are mission-critical and deeply embedded
⚡ Final Thought
“Great products don’t always make great investments —especially if they are at risk of becoming obsolete.”
In today’s market, disruption risk is no longer optional analysis —it is a core survival filter.
Because the biggest losses in investing don’t come from overpaying.
They come from owning a business that no longer matters.
This is just one of the many checklists I use to analyse stocks and construct my portfolio.
If you’re interested in the full framework, 👉 click here to explore all my checklists
✅ Add this to your Checklists with IceT.club
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