CIOs believe that the adoption of AI will unlock value in many sectors. Large technology companies have further room to grow, and we see the US information technology sector as our favorite, as it has strong balance sheets and strong earnings growth potential, which aligns with our focus on quality.
We believe AI will continue to drive technological dominance in the future.
- Tech stocks delivered strong returns in the first quarter, driven by AI. Semiconductors were the best performing tech stocks globally.
- We forecast that global technology sector revenues will grow 20% in 2024, with AI memory sector revenues growing 55% in 2024 and 35% in 2025.
- Q1 2024 saw the emergence of promising new AI products, from high-performance GPUs to generative video and coding models.
But the story doesn’t end with AI, big tech companies are also providing quality exposure.
- U.S. tech companies' balance sheets appear strong, a positive at a time of rising interest rates and slowing economic activity.
- Earnings revisions are improving, increasing confidence that key end markets have bottomed out.
- The AI market is expected to be dominated by an oligopoly of vertically integrated “foundries” and monolithic players along the value chain.
We see opportunities for both large and small technology companies.
- The rapid rate at which the AI industry is growing suggests that many investors are still under-allocating their investment dollars across the board.
- We like semiconductor companies underpinning AI datacenter infrastructure and edge chips, as well as megacap tech with exposure to chips, cloud and generative AI models.
- Investors may consider exposure through capital preservation strategies that balance participation in upside potential with ways to manage potential downside risks.
Did you know that ?
- We divide the investable world of AI into a value chain: the enabling layer that provides the backbone of AI development, the intelligence layer that turns computing and energy resources into intelligence, and the application layer that incorporates the tools of the intelligence layer.
- The artificial intelligence market potential is enormous, with value creation from AI predicted to reach US$1.16 trillion by 2027.
- Forty percent of S&P 500 companies mentioned “AI” in their first-quarter earnings calls, according to FactSet data.
Investment Outlook
We view the U.S. information technology sector as our most favorable. Within the AI opportunity set, we like the enabling layer due to its combination of attractive and tangible revenue growth profile, strong competitive positioning, reinvestment runway, and reasonable valuation. We like semiconductor companies that are driving investments in AI infrastructure in the data center and at the edge.
Main contributors – John Gordon and Julian Wee
Original Report – How should you invest in technology?, June 24, 2024.
For more information about artificial intelligence,Chief Investment Officer AI Content Hub.
