Hedge funds bet against call centre stocks as AI threat grows
Outsourcing companies hit as investors see ‘clean’ disruption risk
Hedge funds are betting against the shares and debt of outsourcing companies providing call centres, telemarketing and other services, in the belief they will be decimated by the rapid growth of AI.
Stocks including Paris-listed Teleperformance, the world’s largest customer service company, and Nasdaq-listed TTEC Holdings are among those targeted by short sellers, as investors look beyond big software names for firms whose products could be under threat.
Call centre and other so-called customer experience companies are “a very, very clean AI disruption case”, said Kasper Elmgreen, chief investment officer for fixed income and equities at Nordea Asset Management. “Essentially you have a service which is just selling human time to handle repetitive tasks.”
Teleperformance has become one of the most shorted stocks in Europe, with hedge funds including Marshall Wace, Point72, Citadel Advisors and Squarepoint running bets against its shares, according to data group Breakout Point.
Total short interest against the firm — which provides services such as call centres, telemarketing, debt collection and back-office support and whose clients include Meta and Airbnb — has jumped from around 4 per cent at the start of the year to 17.2 per cent this month, according to S&P Global Market Intelligence.
Negative bets have been driven by a belief that AI could render the company’s services obsolete, said two people familiar with short sellers’ thinking.
Teleperformance’s shares have fallen by around one-quarter over the past year, and in September the stock was ejected from France’s blue-chip Cac 40 index.
Funds are also betting against the company’s debt, with an estimated 11 per cent of its €500mn bond due in 2030 being shorted as of the end of May, while 7.8 per cent of the €750mn bond due in 2028 has been shorted, according to Bank of America.
“The rise of generative AI has triggered a sharp shift in sentiment towards call centre operators,” said Vincent Benguigui, a senior credit portfolio manager at Federated Hermes.
“Investors increasingly fear that automated voice systems and digital agents will reduce demand for outsourced customer service staff . . . This narrative has driven a severe equity re-rating and spilled over into credit markets,” he added.
Privately owned Foundever Group, one of the largest providers of customer service calls, sales and help desks and which has clients including John Lewis Partnership, has seen its debt slide deep into distressed territory. Its two bonds due in 2028, worth $1.1bn and €1bn, are trading at around 50 cents on the dollar, after dropping as low as 39 cents earlier this year. Both traded at near par in early 2024.
In mid-December, S&P Global downgraded Foundever’s credit rating to CCC from B minus due to “expected liquidity deterioration and strained lender relationships”.
The €322mn of senior secured floating-rate notes issued by Swedish customer service and call centre provider Transcom — majority owned by private equity fund Altor — have slipped to 88 cents on the euro, down from 94.2 cents at the start of January.
Meanwhile, the shares of Nasdaq-listed customer service, call centre, chatbot and online content moderation providers Concentrix and TTEC Holdings have both dropped by around one-third this year.
Hedge funds are shorting 15.5 per cent of Concentrix’s shares and 11.8 per cent of TTEC’s, according to S&P Global Market Intelligence, based on shares on loan, a proxy for short selling. Shorts against Concentrix rose as high as 29 per cent in late April.
Such companies have been “decimated” over the past year and a half due to their inclusion in “this AI loser category”, said Emmanuel Cau, head of European equity strategy at Barclays.
“It’s not hard to understand why some of these call centres or [customer services] will be disrupted because, of course, you can imagine AI being able to do what they’re doing for much cheaper,” he added.
India, a country renowned for its customer service sector, has also seen big names hit. Firstsource Solutions has had 20 per cent wiped off its market value this year, while Hinduja Global Solutions’ stock has fallen 11 per cent.
However, Cau said the sell-off had perhaps gone too far as these companies would not disappear overnight and some were undervalued. That had led to “bottom fishing” and a “little bit of a nascent recovery”.
He added: “The question is whether some of these companies can use AI as a way to revive or to regain client interest. Are they disrupted, are they going to disappear? Or can they somehow improve or strengthen their business model by integrating AI?”
Some firms are rapidly trying to integrate AI into their systems. Teleperformance has launched TP.ai FAB Connect, which it describes as “hybrid intelligence orchestrating people, AI and workflows”, and Concentrix has a proprietary tool called iX Hero which helps customer support staff. A Concentrix spokesperson said the market was “drawing the wrong conclusion” and that the company was “positioned to lead” in the growth of “integrated offerings” of AI and people.
Teleperformance did not respond to a request for comment.
TTEC said the company had invested heavily in its AI capabilities and viewed the technology “as an opportunity, not a threat”, allowing it to improve its offering to customers.
HGS and Firstsource Solutions both said they were deploying AI in their businesses to improve services for customers.
Elmgreen said that there was more “nuance” around the AI loser theme and software more broadly had become a “hunting ground” for undervalued stocks, although he added the “burden of proof” for a company to dispel AI disruption fears was high.
“If I tell you that the business you’re running may not be viable in three to five years or a significant portion of your business may not be viable in three to five years, it’s going to be very hard for you to disprove that in the next quarter,” he said.
