AI is a new and exciting subject that has driven US equities to new all-time highs and has already started impacting most people’s lives, even if they don’t yet realise it – it’s an ever-changing world; only 18 months ago, US tech was struggling as rate rises weighed on growth stocks. Artificial intelligence, or AI, has been brewing as the new megatrend for years, with Nvidia now leading the charge. Unfortunately, the local market has few companies that look likely to mirror the performance of their US peers, but there will still be beneficiaries. However, there will also be some negative disruption, which isn’t yet getting much airtime. Digital businesses like Seek (SEK) and REA Group (REA) will use AI to improve the consumer experience, a must if they want to enjoy ongoing pricing power, but on the flip side, this development costs money, and there are risks that a new better-engineered competitor may enter the fray.
Companies that adopt AI faster are likely to be better positioned to grow, although in many cases, the cost savings will be limited, suggesting the downside from lack of adoption is greater than the upside from adoption. Also, as touched on earlier, over the coming years, there will be the emergence of replacement products, which will pressure the incumbents, i.e. we are set to see plenty of examples of “sink or swim” as new market entrants prioritise AI.
The buzz around AI reminds us of the “.com boom & bubble of the 1990s”, where not everyone got it right, and failure led to savage share price declines. However, at the moment, company presentations, including any AI strategy, are being well received by the market, although exactly how the revolution will unfold is up for debate – at MM, we will be watching and discussing this boom area throughout the year as we see the evolution of technology and efficiency of implementation drive share prices, but not all boats will float the same. At the moment, it’s the low-hanging fruit, such as contact centres and software engineering, that are seeing early adoption, but as Jensen Huang said, it’s just the beginning, and MM looks forward to guiding you on this exciting journey over the next decade. For now, it is simple: US tech stocks with AI capabilities are dragging the broader market ever higher:
- The risk/reward might be scary towards US tech, but until further notice, we like the “buy the dip” approach.
