Seize the AI opportunity
AI will prove to be one of the largest investment opportunities in human history, in our view, and investors need to ensure their portfolios are “AI enabled.”
The market potential of AI is vast, and we expect AI to be a key driver of equity market returns over the coming years. We think it is important that investors hold sufficient longterm exposure to AI. For now, we see the best opportunities in the enabling layer of the AI value chain - which is benefiting from significant investment in AI capabilities - and in vertically integrated megacaps, which are well positioned across the value chain.
Get your portfolio “AI-enabled”
Get your portfolio “AI-enabled”
Many investors have built at least some exposure to AI over recent months. Yet the sheer pace of growth in the industry means that many investors remain under-allocated overall. Some of the largest tech companies have comparable weightings to certain country equity markets. For example, in the MSCI AC World benchmark index, the allocation to two of the largest AI leaders alone is roughly equivalent to that of the UK, China, and Switzerland combined.
Position in the enabling layer...
Position in the enabling layer...
While there is a risk that fears about overcapacity in the enabling layer could trigger volatility, the segment is currently benefiting from strong rates of investment and, in our view, currently offers the best mix of attractive and visible earnings growth profiles, strong competitive positioning, and a reinvestment runway. We favor the semiconductor companies that are driving the investment in AI infrastructure at the data center and at the edge. Investors concerned about potential volatility ahead can consider structured strategies with capital preservation features.
... and in the megacaps
... and in the megacaps
We believe market concentration is a feature of the new AI investment landscape. Over time, we expect the AI market to be dominated by an oligopoly of vertically integrated “foundries” and monolithic players along the value chain. So, alongside semiconductors, we also think investors should position in the oligopolies that are present across the entire technology stack, covering chips, cloud computing, and generative AI models and applications. We think these companies will be well positioned to navigate potential shifts in the competitive landscape in different parts of the value chain.
It's not just about the US
It's not just about the US
The biggest beneficiaries of the AI rally so far have been in the US. But China’s tech monoliths have been left behind in the rally and are still trading at similar valuations as they were prior to the launch of ChatGPT. Fears about tariffs, export controls, local regulations, and weak market sentiment have all contributed. Yet China’s largest tech companies are also investing heavily in AI. And ultimately, we expect China to develop an AI ecosystem that is distinct from that in much of the rest of the world. This should lead to significant monetization potential for China’s AI giants.
