The overwhelming «tangibility» of Artificial Intelligence (AI)
Global equity investors are wondering if AI will truly be the engine of change and improvement for many companies and, therefore, for the profitability of their investments.
What can be gleaned from the publication of the first quarter results.
To begin, three starting ideas : the main technology businesses linked to AI are in good financial health, investment plans in AI continue to grow, and the same is true for the profitability of the companies within the AI ecosystem.
In fact, Amazon, Alphabet, Meta and Microsoft, which presented their results a few days ago, registered an average revenue growth of over 20%, with AI as the main driver of growth .
All announced major investment plans and the current forecast is that, this year, the largest US cloud services companies will collectively allocate more than $750 billion to this area, which represents an increase of more than 80% compared to last year (almost two-thirds of the total capitalization of our Spanish Stock Exchange).
Are investors convinced of the potential of this investment?
Despite what was explained in the first point, many investors, analysts, and investment fund managers are not entirely convinced that such increased capital investment in AI will yield returns commensurate with the financial effort involved. They doubt the soundness of the underlying core businesses and whether the monetization indicators truly point to a sufficient return on invested capital. They also warn of the uneven stock market performance of big tech companies in recent quarters.
Although, unlike what happened in 2000, these investments are based on real sales and profits, the memory of that historical episode of overvaluation and overinvestment in the technology sector, and the current reality of an increasingly competitive environment with some obstacles as significant as the very high energy consumption that these industries require, are factors that frequently raise a barrier that often stops the final investment in this type of company.
Key trend in the growth and development of economies
I believe it’s a mistake to overlook this type of investment. With a balanced and diversified approach across sectors and subsectors, the long-term profitability potential of the AI ecosystem is immense. Its cross-cutting nature makes it an essential component in an increasing number of industrial processes, giving it a growing weight in countries’ GDP (AI infrastructure alone is contributing half a percentage point to US GDP growth, according to estimates from the Neuberger financial group), and this investment momentum is likely to continue through 2026, as demonstrated by the recent upward revisions to fixed asset investment forecasts by Amazon and Meta.
The demand for AI is also being confirmed, given the signs of short-term capacity limitations and the growing pricing power among AI providers, and in practice, it is causing a change in citizens’ routines.
That’s why, both geographically and sectorally, the number of companies from which we can benefit from an investment perspective is growing. It’s no longer just the US and Big Tech (some more than others, really); companies from Asia (Taiwan Semiconductor Manufacturer is one of the world’s largest companies by market capitalization) and Europe (with giants like ASML and SAP) are joining the phenomenon, as AI is progressively expanding its base of beneficiaries, leading to a more distributed market, with a greater number of companies participating in the price increases and less concentrated leadership.
How to gain exposure to this big trend that underpins the growth of humanity
Beyond direct investment in the mammoth publicly traded companies known to all, such as Nvidia (AI chips), Microsoft (AI in the cloud and software), Alphabet (AI in search engines and products), Amazon (AI in the cloud), and Meta (AI in social networks), companies that are constantly in the spotlight due to the publication of their results and consequently greater volatility, my recommendation is to invest via investment funds and thematic ETFs with a broad portfolio.
Among these, there are more global or more specialized ones, making it possible to achieve efficient diversification in companies directly linked to AI , the robotics and industrial AI sectors, and semiconductor and chip manufacturers . This business has barriers to entry that time has shown to be difficult to overcome (Nvidia, AMD, and the Asian company TSMC are now among the largest companies in the world), but at the same time, it has put many smaller companies on the investor table that these giants rely on and that are offering high returns on the stock market.
The possibilities are very broad, so in addition to the progressiveness in taking positions combined with patience and a long-term vision as in any other equity investment, achieving efficient diversification and management at a reasonable cost will determine that the final return is different from passive management linked to an index.
It is also highly striking that in this unfinished energy crisis due to the conflict in Iran, it is the technology sector, driven decisively by AI, that is acting as a catalyst , unexpected for many, for the rise in the stock markets.