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AI hype or lasting change? Here’s our take – and what it means for PruFund

6 min read

This article is for information purposes only and does not constitute financial advice. 

Technological change is nothing new to markets, but some innovations have a broader and more lasting impact than others. Artificial intelligence (AI) is increasingly being viewed as one such development. Here’s how our investment experts at M&G currently view things.

This isn’t the year 2000 – but it isn’t without risk either

The biggest names in AI – Nvidia, Microsoft, Amazon, Google – have seen their share prices soar in recent years. Together, a small group of US tech giants now makes up an extraordinary chunk of the US stock market. That kind of concentration understandably makes people nervous.  

But there’s an important distinction between speculation and substance. During the ‘dot‑com boom’ of the late 1990s and early 2000s, investors poured money into internet companies simply because they were online. Many had little in the way of revenues, profits or proven business models – just a website, a big idea and lots of optimism. When expectations collided with reality, sentiment turned sour, stock prices fell sharply, and many companies failed altogether. Only a select few – built on solid fundamentals – were able to recover. 

Today’s AI giants are different – they’re already generating real revenues, real profits, and real demand for their services. But – and it’s an important but – if AI doesn’t deliver on its promise as quickly as markets expect, there could be correction. Which is exactly why how your money is invested – and how diversified it is – matters so much.  

Where are we in the AI story?

 

You can think of the development of AI in three broad chapters:

  • We’re currently deep into chapter one: building the infrastructure. Vast data centres, specialist chips and the energy required to power them. This is where much of the investment – and many of the high-performing companies – have been focused so far.

  • Chapter two is adoption: businesses and consumers starting to weave AI into their everyday lives and operations. Usage among individuals is already high, but most organisations are still early in the process of figuring out how to use AI in ways that are genuinely valuable.

  • Chapter three – and the one that really matters – is productivity. Does all of this actually make us better off as a society? Does it meaningfully improve economic efficiency? Analysts disagree on the scale of the impact, with expectations ranging from a modest boost to a larger step‑change. The honest answer is that no one knows yet. Only time will tell.


It’s worth remembering that every major technology has – more or less – gone through this same arc. The internet felt revolutionary in the mid-1990s, but it took another decade before it fundamentally changed life as we know it. The same happened with credit card adoption during the 1950s to 1970s. People were slow to trust a new payment system which felt alien. But as confidence grew and surrounding infrastructure matured, adoption increased. AI is likely to follow a similar path – real, meaningful, but gradual, and with inevitable hiccups along the way. 

Thinking in scenarios, not certainties

One hallmark of disciplined investment management is the willingness to think carefully about multiple futures, not just the most optimistic one. 

In a strong growth scenario, AI adoption accelerates sharply over the next five years, productivity gains come through in economic data, and the benefits broaden well beyond the handful of companies currently closest to the AI theme. Stock markets continue to perform, and the story becomes one of widening opportunity rather than narrow concentration. 

In a more challenging scenario, the extraordinary investment being deployed into AI infrastructure takes longer to translate into returns. Business adoption proves slower than expected. Tech stocks – already priced on high expectations – experience a tumble. Given how heavily US markets are weighted toward these companies, investors with sizeable exposure would feel the impact significantly.

We don’t know which scenario the future has in store – no one does. What we can do is invest in a way which participates meaningfully in the upside, while not being wholly exposed to the downside.  

Two influential forces worth watching

  • Geopolitics will play a key role

    AI has become one of the biggest areas of competition between the world’s major powers. When the US moved to restrict sales of its most advanced chips to China in 2022, the aim was to slow Chinese progress. It didn’t quite work out that way. In early 2025, China’s DeepSeek produced an AI system that rivalled the world’s best – at a lower cost, and despite the restrictions placed on it.

    But software is only part of the story. China has the edge in robotics. It’s already the world’s largest producer of industrial robots, and it’s now combining that manufacturing strength with AI – creating a new generation of machines capable of working and making decisions with minimal human input. 

    However, when technological leadership is at stake, the US is never likely to take a backseat, and the government has shown a willingness to intervene. The US AI industry is set to benefit from significant state backing through subsidies, long-term contracts, and strategic partnerships. Going forward, government backing could prove as important as computing power.
     
  • Energy constraints could be a limiting factor 

    AI is extraordinarily power-hungry. Every query, every generated image, every automated decision requires enormous computing power – and that requires electricity, cooling, and infrastructure on a scale the world is still scrambling to build. This bottleneck is estimated to drive $1 trillion of spending by 2030 (Source: PitchBook). Some of the biggest tech companies are already exploring solutions that a decade ago might have sounded like science fiction, a standout being Google proposing to build data centres in space. The ability to meet this energy demand will play a significant role in how fast AI can scale. 

How PruFund is invested

Our approach to AI reflects something we believe deeply: that long-term investment success is built on genuine diversification. The US giants driving the AI revolution are genuinely important, and we have no intention of standing aside from that opportunity. But concentrating heavily in a small number of companies in one geographic location – however impressive their recent performance – is not consistent with how we think about managing risk on your behalf.

An average multi-asset fund might hold roughly 60% of its stocks and shares technology exposure in the US. PruFund, by contrast, holds around 25%. The remainder is spread across Asia – particularly South Korea, Taiwan, and China – where technology companies have been delivering strong earnings growth, often from more attractive starting valuations than their US counterparts. 

This is not a conservative approach. It’s an active, forward-looking one. We are participating in the technology story, but doing so in a way that is genuinely global – seeking out the best opportunities across the full landscape of AI-related growth, rather than concentrating on one corner of it.

This breadth of diversification matters – and is the foundation, in our view, of which prudent investing is built.  

The value of investments can go down as well as up and you may get back less than you invest.