Key message
Tech sector volatility has picked up in 2025 so far on both disruption and tariff risks. But we also expect robust capital spending and further progress on AI monetization, with strong earnings supporting our preferred stocks. We view the US IT sector as Attractive due to its promising fundamentals, and recommend investors use any near-term volatility to build up sufficient exposure to quality AI stocks.
We are positive on AI and recommend investors take advantage of any near-term volatility to build up sufficient exposure to quality AI stocks.
Global tech shares sold down on 27 January after new AI model DeepSeek challenged AI capital expediture assumptions.- Leading AI chipmaker NVIDIA fell nearly 17% in one session, while AI power names like Vistra and GE Vernova fell some 20-30%.
- Tech volatility has continued since, with the Nasdaq index down 13.6% from its mid-February peak, as of 28 March.
New this week
The EU Commission on 28 March said it would invest EUR 1.3bn in AI, cybersecurity and digital skills over the next 2 years in a bid for "tech sovereignty". Microsoft has reportedly backtracked on several large data center projects amid changes to its cooperative strategy with OpenAI. Elon Musk's xAI acquired X (formerly Twitter) for USD 33bn, in a deal to combine "data, models computer, distribution and talent."
Investment view
With strong near-term visibility for tech earnings, we remain bullish on the AI theme and maintain our positive view on AI semiconductors and leading cloud platforms. We recommend taking advantage of any near-term volatility to build up exposure to quality AI stocks via buy-the-dip and structured strategies.
Did you know?
- The 'Magnificent 7' were responsible for more than half the S&P 500’s gains in 2024.
- Though valuations have come off, tech has still helped pull the S&P 500's forward price-to-earnings to 20.5x, a step above both its 10- and 20-year averages of around 18x and 16x, respectively.
- The artificial intelligence market potential is large—we estimate that AI value creation could amount to USD 1.16 trillion by 2027.
1. AI will be the most profound innovation and one of the largest investment opportunities in human history
2. The ratio of monetization potential of the AI application layer to the costs of the enabling and intelligence layers will become a key metric for investment returns
3. AI will kick off a data center capex cycle that will dwarf general purpose data center capex in the next years
4. The AI silicon moment: AI chips will capture a large part of the AI value creation
5. The AI enablers will be the first adopters of AI, driving both revenue and margin upside
6. Monolithic players will emerge along the AI value chain and over time, the AI market will be dominated by an oligopoly of vertically integrated “AI foundries”
7. Software will become ubiquitous
8. Data assets will emerge as the competitive differentiators for AI adopters
9. Despite the increasing number of new open-source models, proprietary models will remain the top performers
10. The application and intelligence layers will merge with artificial general intelligence (AGI)
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Layer by Layer: Artificial Intelligence insights
Layer by Layer: Artificial Intelligence insights
Layer by Layer explores the fascinating and evolving world of artificial intelligence, how it's transforming industries, redefining what's possible and reshaping the future.
