Pick leaders from disruption

The arrival of mainstream AI services accessible to consumers has driven significant investment into the world’s largest technology leaders, crowning the first trillion-dollar AI company in the process. The "Magnificent 7," mostly AI beneficiaries, rallied 107% in 2023. With access to all the computing, financial, human, and data resources they need to grow and exploit the potential of generative AI, the largest players could grow even larger over the coming decade, in our view.

But this is not a story limited to mega-cap tech. We think technological disruption will be an enduring theme that spawns new opportunities and leaders across sectors in the decade to come.

From an investment perspective, the beneficiaries of AI can be broken down into four areas: infrastructure and input providers (cloud), hardware (GPU manufacturers), operators and enablers (large language models), and application beneficiaries (text generation, programming, image/video generation).

We therefore see AI-related opportunities across a range of software, internet, and semiconductor stocks. Based on Bloomberg Intelligence data, we now expect global AI demand to grow from USD 28bn in 2022 to USD 420bn by 2027—a 72% annual growth rate and a fifteenfold increase in just five years. In that time, we think the applications and models segment will grow by 152%. 

Recent company product and earnings announcements in the software sector have provided a peek into AI’s monetization potential. For example, new “copilots” are being rolled out rapidly. These are AI companion tools integrated within office workflow software to boost employee productivity, performing tasks that range from finding information to creating content. The ability to charge additional monthly fees for copilot add-ons gives subscription-based software companies an expanded scope for AI monetization.

Concerns about climate change, national security, and advancing technology are driving global decarbonization. Creating an economy free of carbon emissions and transitioning to clean fuels is a complex undertaking. It will require investment in power generation, energy infrastructure, transport, industry, buildings, and heating and cooling systems, with the adoption of green technologies to achieve net-zero targets. We think investors will gain most through exposure to a number of these themes given the different stages of development across countries and sectors.

We expect global solar capacity to triple in the coming years from the current 1,000 GW, increasing the share of renewables in the global power mix. The share of renewables in electricity generation has already risen from 20% to 30% over the past decade. Investors can tap solar opportunities through diversified exposure to greentech, long-term exposure to the energy efficiency value chain, or more concentrated exposure to smart energy solutions.

We expect electrified vehicles (including battery electric and hybrid) to make up around 30% of global auto sales by 2025 and more than 60% by 2030, driven by incremental technological developments and regulatory changes. The electric vehicle value chain is integral to greentech investment themes, especially in Asia and Europe.

Meanwhile, decarbonizing the heating and cooling systems of buildings and factories will require strong emphasis on energy-efficiency investment. When the limits of hardware are reached, software can often be used to enhance energy efficiency. This should open up opportunities for companies that gather digital data and provide enabling technologies.

Beyond public markets, investors can tap into energy disruption opportunities in private markets, including in renewable infrastructure development, energy networks, storage, carbon capture, energy efficiency, and circular economy solutions.