Source: Bloomberg, 27 June 2023. Currency: USD. The picture is similar in local currency, although the order varies.
At a broader level, over the same period, 69 out of 100 of the top MSCI ACWI performers were outside of the US. In US dollar terms, the US takes the lead, while in local currency China has 31 of the top 100 performing stocks.
Anecdotally, we have asked a number of audiences over the past few weeks if they could guess the composition of the top 10 list of MSCI ACWI outperformers year to date. Most believed that the majority of names were US listed.
We have long maintained that for the long term we favour structural themes, those that would continue to see higher capital flows compared to the rest of the market even with a weaker macroeconomic backdrop. These are: infrastructure, the low-carbon ecosystem, and innovation.
We clearly are not the only investors focused on innovation, judging from the strong recent performance of companies that are – rightly or wrongly – perceived to be benefiting from Artificial Intelligence (AI).
The notoriety of ChatGPT and the rally experienced by Nvidia year to date (nearly tripling to breach the US$1 trillion in market cap mark) has greatly raised the profile of generative AI in the eyes of investors and the general public.
We believe that AI and its applications have the potential to become a disruptive force in our personal and professional lives. AI is not new. The first AI wave began roughly 10 years ago, with image recognition and predictive analytics as primary use cases. However, AI is now entering the next phase of its evolution driven by generative AI and large language models (LLMs). The new applications, as well as the improved user interface, are bound to catalyse the spread of AI technology.
As we witnessed the skyrocketing performance of Nvidia and a handful of other stocks in the first half of 2023, the M&G Equities and Multi Asset teams have been identifying additional companies for which the market has yet to realise the potential impact and benefits of AI. In this, we are helped by having experienced colleagues with extensive expertise in investing in AI over the last decade.
Beyond Nvidia, across industries and markets
Our aim has been to look at AI across the board. Not only enablers – those companies that provide the technological building-blocks that make AI possible – but also service providers who can leverage AI to improve customer outcomes, as well as beneficiaries within and outside of the technology sector. Importantly, we looked beyond the US market.
As we were going through this exercise, and exploring all areas where we see AI making a difference, now and in the future, we thought our clients would find it interesting to become part of the discussion. Hence the decision to dedicate our Q3 23 Outlook to this topic.
As an important disclaimer, we are not aiming to make stock recommendations based solely on AI. Not all of the stocks we mention are either owned in our investment strategies or considered timely investments. Rather, we wanted to provide our clients with examples of the possibilities that lie ahead.
For many companies, the potential gains in terms of efficiencies, productivity, and cost savings will likely take time to be realised, as we experience an ongoing reshaping of jobs and industries, and overcome multiple social, regulatory, safety and security obstacles. Some companies may find themselves not being able to keep up with more AI-savvy competitors, or may end up seeing the markets they operate in fall victim to AI’s many applications.
While Nvidia has seen an inflection in revenue related to generative AI, given the large amount of computational power that is required to run LLMs, there are a number of other companies and industries that will benefit from this AI movement – from software to semiconductor companies, to firms providing high-speed networking infrastructure (particularly for data centres and large cloud companies). We also believe IT services companies will help their clients deploy generative AI.
Over time, we expect an increasing number of non-IT companies to benefit from applying AI to their operations. From healthcare to financial services to infrastructure, the number of use cases are increasing at a rapid pace. Importantly, businesses that have collected and own proprietary datasets stand a better chance of benefiting from AI, as they can employ technology to more effectively mine and utilise such data.
As mentioned, the opportunities for AI use lie well beyond the borders of the US. For example, our discussions with Japanese companies thus far in 2023 have revealed a high level of awareness of, as well as investment in, AI – and generative AI in particular.
Importantly, AI has the potential to change the geopolitical balance of power, with a number of emerging market countries potentially adapting to new technologies quicker than some developed countries. For example, AI developments and adoption are progressing rapidly in emerging Asia, with companies across Korea, India and China well positioned given their advanced technological know-how. The younger demographic profiles of India and Indonesia make them among the top countries globally contributing to traffic on the ChatGPT platform1.
Elsewhere, in Latin America, financial firms have moved quickly to adopt ChatGPT and AI into their tech arsenal, often deploying on an experimental basis. Such firms are in a strong position to do so, given the vibrant fintech scene. Last but not least, the Middle East is leveraging its rich capital pool and is moving quickly to take advantage of AI opportunities.
As ever, the start of a new disruptive market force will create winners and losers. On a multi-year basis, we believe that the implementation of AI, and generative AI in particular, will be but one determinant of those winners and losers.
While we regularly test the robustness of our investment theses for companies held in our portfolios, in time, AI will likely require us to revisit the fundamental investment case for any given holding. In doing so, our priority will be to anticipate and move ahead of perceived risks, while at the same time identifying potential opportunities.
In the following tabs, you will find views from our Equities and Multi Asset Investment desks, looking beyond Nvidia, at what their respective markets offer or could offer when it comes to AI – whether it is from the point of view of the technology enablers, the service providers, or the early beneficiaries across a variety of sectors.
We wish you an enjoyable and – hopefully – interesting read.