Top stocks to insulate your portfolio from AI volatility

AI-insulated BT Group (LSE:BT.A), AstraZeneca (LSE:AZN), Diageo (LSE:DGE) and Costain Group (LSE:COST) are among the top picks after a City bank examined how investors can build a portfolio to navigate tech volatility.

Berenberg’s 32-strong selection of stocks with an “AI–unrelated” investment thesis also includes Shell (LSE:SHEL), Filtronic (LSE:FTC), Haleon (LSE:HLN) and Endeavour Mining (LSE:EDV) among the 12 UK-listed names.

The recommendations are focused on value, hard asset and old economy sectors, led by stocks in European and UK telecoms, construction and pharmaceuticals.

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Berenberg’s analysis follows the dominance of the AI trade in 2026, which has been underpinned by US earnings beats, robust demand, capacity constraints and the potential for transformational economic growth.

Global equities have returned 10% so far this year although that becomes 3.5% when excluding stocks in semiconductors and hardware after both delivered growth of 45%.

Over the last few weeks, AI stocks have experienced heightened volatility as the risks around deployment and funding increase.

And looking longer term, Berenberg adds that resource demand, social backlash and adoption/integration risks all present a challenge for stakeholders.

Even though European and UK equities offer less correlation with global technology, more sectors are now associated with AI as bottlenecks and further use cases are identified.

The bank believes that upside in telecoms is more likely to relate to Europe’s push for data sovereignty, which boosts the value of networks, and from synergies linked to consolidation.

It adds that top pick BT Group is a major beneficiary from the end of its full-fibre rollout, meaning that normalised free cash flow is due to rise from £1.5 billion to £2 billion this year and then to £3 billion by 2030.

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Berenberg said: “Excluding AI, BT has many cost levers to pull, and the consensus value of the Openreach network seems underestimated, in our view.” The bank has a price target of 300p, which compares with this morning’s 189p.

While AI has the potential to improve drug discovery, the healthcare sector provides exposure to a number of alternative structural tailwinds.

In relation to AstraZeneca, the bank highlights top-tier growth and a highly resilient and growing pipeline built around a strong market share in oncology and rare diseases.

With a target price of 17,000p, Berenberg added: “The company has one of the strongest R&D engines with a track record of delivering R&D returns above cost of capital.

“AI could expedite R&D, but commercial success depends on effective clinical trial design and regulatory approvals.”

Diageo is chosen by Berenberg as it believes the Guinness and Smirnoff owner has the portfolio of brands and leadership experience under former Tesco boss Dave Lewis to adapt to changing trends in the US spirits sector.

The bank, which has a price target of 2,223p, points out that Diageo’s core spirits business is trading on an implied multiple of 10 times earnings. This compares with Pernod Ricard SA (EURONEXT:RI) on 11.5 times and Davide Campari-Milano NV Az nom Post Frazionamento (MTA:CPR) on 13.7 times.

It adds: “AI may eventually help Diageo become a more efficient marketer, but it is unlikely to determine demand for spirits or beer.”

Berenberg points out that Haleon, which is a market leader in oral care, vitamins, minerals, and supplements and over-the-counter medications, is driven by consumer megatrends that are broadly independent of AI.

These include an expanding middle class in emerging markets, ageing populations and rising health and wellness awareness.

To capture emerging market demand, Haleon is actively expanding its distribution and innovation in India and scaling up its e-commerce infrastructure in China.

Haleon trades on 16.2 times future earnings, which is a 13% discount to the diversified household and personal care market. The shares are backed to reach 512p.

The bank adds that the valuation of Shell on 8.5 times 2027 earnings is too cheap given the company’s cash flow and growth dynamics. It has a price target of 4,000p.

The oil giant continues to target 10% a year growth in free cash flow per share to 2030, delivered through greater capital discipline, operating cost savings, a focus on improving returns in underperforming businesses and a share buyback programme.

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While many miners have exposure to metals linked to AI chips or energy demands, Endeavour Mining is liked for its exposure to gold as a store of value during inflationary periods.

The bank highlights West Africa-focused Endeavour’s attractive volume growth, strong balance sheet and potential shareholder returns as reasons for the upside to a target price of 5,000p.

Other top picks include construction firm Costain, which through its focus on complex, large-scale infrastructure projects across the transportation, water, energy and defence sectors should be insulated from the AI trade.

The shares have increased by 30% year to date, but Berenberg thinks there’s room to reach 240p based on the step-change in performance that management anticipates in 2027 and beyond and the potential for further shareholder returns.

As a leading supplier to the space industry including Space Exploration Technologies Corp Class A (NASDAQ:SPCX), Berenberg believes that Filtronic has a significant runway to continue its recent high growth.

The AIM-listed business designs and manufactures highly differentiated components and subsystems for radio frequency communication networks, with these products crucial to reducing latency and increasing capacity in satellite-based communications.

Berenberg said: “We view Filtronic as a unique stock offering investors exposure to the booming space industry alongside an accelerating European defence market.”

The shares peaked at 480p in May, having surged from 160p in the space of two months. They have since fallen back to 270p, which compares with Berenberg’s target price of 440p.

The other UK recommendations are Concurrent Technologies (LSE:CNC), Renew Holdings (LSE:RNWH), Grainger (LSE:GRI) and Gym Group (The) (LSE:GYM).

Berenberg’s European picks include Novo Nordisk AS ADR (NYSE:NVO), Compagnie de Saint-Gobain SA (EURONEXT:SGO), Orsted AS (XETRA:D2G), Glanbia (LSE:GLB), Puma SE (XETRA:PUM), Technogym SpA (MTA:TGYM), Aegon Ltd (EURONEXT:AGN), ProCredit Holding AG (XETRA:PCZ) and Finnish energy firm Neste.