Investors looking to benefit from the growth in technology stocks due to the boom in artificial intelligence (AI) should recognise established companies are more likely to benefit as they have the structures to implement it into their products and services, according to two investment managers.
Munro Partners portfolio manager Qiao Ma recognised the use of generative AI, which provides assistance in the production of writing and visual content, would drive an accelerated cycle of innovation for all businesses and technology providers are already benefiting from this shift.
“In every boardroom meeting the board members are asking: ‘How do we use AI better?’ which reminds me of when technology platforms moved from computers to mobile devices,” Ma said during a recent media briefing hosted by investment manager GSFM.
“It was just the internet going mobile, but that spurred a massive wave of innovation and the current wave will lead to faster corporate earnings growth for companies that know how to use this technology,” she explained, adding seven of the top 10 stocks in the S&P 500 were technology stocks benefiting from the growth in AI.
Man GLG portfolio manager Andrew Swan noted recent improvements in the performance of technology stocks for hardware producers were also likely to continue as demand for their products grew.
“Semiconductor demand is still small in the AI computing space, but is growing extremely quickly and will become a more meaningful part of the industry in the coming 12 months, so the outlook for the semiconductor industry has improved quite a bit,” Swan revealed.
“It is such a new space and the use case for AI is still starting to emerge around software and increased productivity,” he said, adding the United States government’s proactive stance on AI had put it well ahead of other markets.
“I would say the US is in a much stronger position than say China in getting the full benefits of this phase of innovation. At this stage you don’t want governments coming in and regulating, you want entrepreneurship and innovation taking control, which is the way the US always does things.”
On the software side, Ma acknowledged the early winners in relation to AI would be companies already operating in regulated markets and noted Microsoft would introduce AI to its suite of business software and Adobe would do the same with its photography and graphic design software.
“Microsoft announced the AI-assisted version of Windows Office is going to be $30 per user per month. Even at $25 per user per month that’s $300 a year and if a quarter of the 400 million Windows users decide to use it, that translates to about $30 billion of incremental, very high margin revenues, which is roughly a 10 to 15 per cent lift on earnings per share for the company two years from now,” she said.
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