ClearBridge Mid Cap Exits Ashland: A Shift Toward AI and Away from Sluggish Chemicals

The ClearBridge Mid Cap Strategy’s decision to sell Ashland Inc. (NYSE: ASH) in Q1 2025 underscores a seismic shift in investor sentiment toward legacy sectors and a growing obsession with artificial intelligence (AI) as a catalyst for rapid returns. The fund’s departure from the specialty chemicals company, which saw its stock plummet 48.98% over the past year, reflects a broader market rotation away from industries facing secular headwinds and into tech-driven growth plays.

The Case Against Ashland
Ashland’s struggles are both financial and structural. In its fiscal first quarter, sales dropped 14% year-over-year to $405 million, signaling a slowdown in demand for its specialty chemicals and additives. The company’s market capitalization shrank to $2.29 billion by April 2025, a stark contrast to its peak valuation. Compounding these issues, Ashland’s stock lost 14.84% of its value in just one month, further pressuring ClearBridge to exit a position that had become a drag on performance.

The fund’s Q1 investor letter cited “idiosyncratic headwinds” and macroeconomic turbulence—including fears of tariffs and global trade conflicts—as catalysts for underperformance. But the deeper rationale was strategic: Ashland’s reliance on cyclical end markets like automotive and industrial manufacturing made it vulnerable to a slowdown, while its valuation offered little upside in a market fixated on AI’s exponential growth.

The Rise of AI: ClearBridge’s New North Star
In contrast, ClearBridge doubled down on AppLovin (NASDAQ: APP), a digital advertising platform that reported 44% revenue growth to $1.37 billion in Q4 2024, despite its shares falling 9.92% in Q1. The strategy acknowledged AppLovin’s strength but framed it as a “non-AI play” in a market now demanding direct ties to the technology. The fund’s preference for AI stocks—citing “the cheapest AI stock” as a rival to NVIDIA—highlighted its belief that only companies directly involved in AI development or infrastructure would deliver outsized returns.

This pivot aligns with a stark divergence in hedge fund sentiment. AppLovin’s ownership surged to 95 funds by Q4 2024 (up from 51), while Ashland’s stagnated at 24. Neither made the “30 Most Popular Stocks Among Hedge Funds” list, but the gap in institutional enthusiasm underscores the divide between old and new economy bets.

Why the Market Is Betting on AI—and Against Chemicals
The strategy’s moves mirror a wider market dynamic. Investors are fleeing sectors like industrials and communication services, which Ashland straddles, while pouring capital into AI and healthcare. ClearBridge’s underperformance in Q1—driven by tech and industrial drags—reveals the risks of clinging to legacy plays. Meanwhile, AI stocks are benefiting from a “fear of missing out” (FOMO) mentality, even as valuations stretch.

Ashland’s absence from top hedge fund lists and its lackluster sales growth make it a cautionary tale. Its segments—Life Sciences and Specialty Additives—may hold long-term potential, but in a market prioritizing speed and scalability, its slower-moving business model has become a liability.

Conclusion: The Inevitable Rotation
ClearBridge’s exit from Ashland crystallizes a painful truth for investors: in today’s market, growth must be explosive, not incremental. The fund’s 48.98% decline in Ashland’s shares and its 14% sales drop underscore the perils of betting on sectors facing secular decline. Meanwhile, AppLovin’s 249% 52-week surge—despite its recent dip—shows that even non-AI stocks can thrive if they align with broader tech trends.

The lesson here is clear: in an era of AI mania, investors must demand exponential returns or risk obsolescence. For Ashland, the path to relevance may require a pivot to AI-enabled solutions or a strategic repositioning—a daunting task in a market that rewards only the fastest. ClearBridge’s decision wasn’t just about selling a stock; it was about betting on the future—and leaving the past behind.