The trade in artificial intelligence is often framed as a choice among semiconductor makers, data-center builders, and the largest technology companies. However, that sort of narrow framing can miss a different group of potential beneficiaries: established businesses that use AI to make a familiar operation faster, cheaper, or easier for customers. Gus Scacco, senior portfolio manager at Advisors Capital, brought eBay, Thermo Fisher, and Deere to a post-election stock discussion as examples of AI-adjacent businesses. His premise is that AI adoption should translate directly into operational gains — expanding margins, boosting return on equity, and generating free cash flow — rather than relying solely on aggressive infrastructure spending. His approach suits investors who are willing to assess how a company earns money and whether AI technology improves that model. It is less suitable for anyone seeking a simple way to trade short-term excitement around AI, since Scacco’s examples depend on company-specific execution and forward-earnings expectations. Here is how Scacco, who spoke in an interview on Street Talk with TheStreet’s Caroline Woods, distinguishes businesses profiting from AI tools from those just burning cash on capital-intensive infrastructure buildouts. Note: The market musings expressed herein are those of the interviewed guest and should not be treated as professional investment advice. Readers should consult a certified financial planner (CFP) for individualized advice based on their available capital, goals, risk tolerance, and time horizon. Why AI users can differ from AI infrastructure stocks Scacco’s distinction starts with funding. Building data centers and other AI infrastructure can require substantial borrowing, making the projects’ economics sensitive to the interest rate a company must pay on its borrowed capital. He cited CoreWeave, whose bond yields had moved from between 8% and 9% to 15%, as an illustration of why financing costs can become the central investment question. Now we’re looking at 15%. That doesn’t make it economically viable. Gus Scacco, when asked whether interest rates had changed the outlook for CoreWeave Scacco’s point is not that the AI buildout has ended. He says it still has room to run, even as businesses actively deploying the technology find a clearer route to profit growth. That is a narrower screen than simply buying any company linked to the theme: Look for a concrete change in costs, customer experience, or output, and then consider whether the stock’s valuation reflects the possible gains. He also favors businesses that generate free cash flow, pay dividends, and deliver sustainable growth in a higher-interest-rate environment. Free cash flow is the cash remaining after a company pays operating and capital expenses, and companies that generate a lot of it can fund investments without relying as heavily on debt markets. How eBay uses AI to reduce transaction friction eBay is Scacco’s clearest consumer example. The stock was up more than 35% year-to-date at the time of the interview, yet he argued that investors should focus on the earnings outlook rather than the prior share price gain. He said a business that had been growing in the low single digits could reach 15% growth next year, a projection that remains Scacco’s estimate rather than a reported result. The operating mechanism he described is unusually tangible. Scacco said 25% of eBay sales came from overseas and that completing an international transaction had taken seven to nine clicks before AI reduced the process to three. Removing language barriers and checkout steps could make the marketplace easier to use. He also said a seller can upload a product image and have AI create a video around it — a move that could potentially improve marketing without changing eBay’s asset-light marketplace model. Still, that doesn’t make Scacco’s bullish view on eBay a broad call on all consumer discretionary stocks, a category that includes purchases of goods people can defer. Scacco explicitly called it a company-specific pick. He contrasted eBay’s marketplace for unique products with Amazon‘s more generic retail inventory. At the same time, Scacco acknowledges that AI shopping bots could affect the retail landscape over time. Why Deere is an AI productivity story Deere, up 40% year-to-date when Scacco spoke, illustrates a second form of AI adoption: improving the economics of a physical product. He said Deere traded at about 17 times forward earnings — meaning the ratio of the stock’s price to the market’s estimate of profit for the next year — and projected earnings growth of roughly 20%. It’s a software play. Software and hardware. Gus Scacco, when asked how Deere could benefit from AI Scacco’s software-and-hardware framing rests on farm productivity. Deere’s See & Spray system uses cameras to identify weeds and spray them directly, he said, and that method of automation could reduce pesticide use by 75%. The claimed benefit would translate into lower input costs and more precise application for farmers. Scacco also pointed to autonomous planting, harvesting, and spraying as ways technology can reduce labor needs and improve efficiency. The trade-off is that productivity stories still require evidence that customers will adopt the technology and that the company can translate it into recurring revenue. Scacco said software could account for 10% of Deere’s business over time. Investors should treat that as a key metric to track, alongside margins, return on equity, and the trajectory of equipment demand. How to balance AI leaders and a broader market Scacco didn’t argue for abandoning the largest technology companies. He called Microsoft a strong place for investment because of its free cash flow, AAA-rated balance sheet, dividend, and enterprise position. He also remained positive on Oracle, but said its debt will take time to work off and that the company’s efforts to rein in new borrowing bear watching. For diversified investors, Scacco said market leadership had broadened as the Magnificent Seven — which includes Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla —declined and money rotated to other areas. He said he would probably favor an equal-weight S&P 500 fund for new money at this point. Equal-weight funds give each company in a target index the same starting weight, and that reduces the influence of the largest stocks compared with a market-cap-weighted fund. The takeaway for investors considering AI stocks For your portfolio, first decide whether you want long-term exposure to AI leaders, a tactical position in AI users, or broad market diversification. Keep those separate. An individual stock requires confidence in its business model and valuation, whereas an equal-weight index fund might help reduce concentration risk. Then revisit the evidence. For an AI-adjacent company, monitor whether productivity gains actually reach margins, return on equity, and cash flow. For infrastructure companies, weigh financing costs and debt alongside demand. Scacco’s framework favors businesses that can demonstrate durable operating benefits rather than relying solely on enthusiasm for the AI theme. Sources Gus Scacco on Street Talk · watch the full segment Cited segments: Scacco said companies implementing AI could see profitability, margins, return on equity, and cash flow improve. (2:46–3:15) Scacco cited CoreWeave bond yields rising from 8%-9% to 15% and said that level was not economically viable. (2:03–2:38) Scacco projected eBay could reach 15% growth next year and described a reduction in international checkout steps from seven to nine to three. (3:21–4:24) Scacco said Deere’s See & Spray system reduces pesticide use by 75%. (7:21–7:44) Scacco said Microsoft had free cash flow, an AAA-rated balance sheet, and a dividend, while Oracle’s debt burden needed time to heal. (11:40–12:05) Scacco said he would probably favor the equal-weight S&P 500 for new money. (16:21–16:31) Some or all of this content may have been generated by AI. While we strive for accuracy, AI can occasionally produce incorrect information. If you buy something via one of our links, we may earn a commission.
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