The summer of AI, the first of many?
As August ends, investors are wondering if anything has changed regarding the fundamentals of their investments. The answer goes beyond a simple «yes or no.»
With notable gains in the main Western stock market indices, higher in the US due to the greater weight of the technology sector, and declines in fixed income, particularly relevant for sovereign bonds that reflect an increasingly inflationary scenario, we have ended the financial summer practically as it began two months ago. Although only superficially.
In summary, regarding traditional investments and as we move into the final stages of the year, I believe investment portfolios should continue as follows:
- Overweighting equities relative to fixed income and cash . The bull market remains intact, supported by resilient earnings and positive economic growth. However, increased volatility and a more challenging market environment are expected for the remainder of the year.
- In terms of investment style, maintaining a tactical preference for value over growth and continuing to favor the financial, industrial, materials sectors and certain cyclical sectors (airlines is a clear example).
- In fixed income, caution should be maintained regarding duration , as there are still adverse factors for long-term bonds (such as rising real yields, fiscal deficits, and higher term premiums).
- In terms of geographical areas, maintaining the overweighting of Europe and emerging markets , especially some Asian ones, in both fixed income and equities.
- In currencies and alternative assets, with a neutral approach to the US dollar and gold , coupled with diversification in raw materials ( energy transition ) and infrastructure .
And that concludes the brief analysis of the most conventional factors. If you’ve read carefully, you’ll notice I haven’t mentioned Artificial Intelligence (AI), the true engine of stock market growth right now. You’ll see why below.
The benefits of AI engines will arrive soon.
In the subheading, I’m referring, in every sense, to creators and developers and, of course, to the business community in general. It’s no coincidence that, beyond the latest results published by the American big tech companies (Nvidia’s have been impressive, far exceeding expectations and forecasts) and many other technology companies of varying sizes, in August we learned some surprisingly positive data from Anthropic and OpenAI (leading companies competing at the base of the AI ecosystem).
In contrast to those who believe that AI is selling false hopes, destroying wealth, and/or that we are facing something that will collapse, wiping out the enormous investments made in recent quarters, I agree with the analysis of Alex Fusté , strategist at Andbank , who stated in a recent report that «the (latest) financial results of Anthropic and OpenAI demonstrate that the monetization of AI is not a hypothesis» and that «both companies have built, in record time, businesses worth tens of billions.» He concluded by indicating that «there is no longer any reasonable doubt about the demand» and that «perhaps the only remaining question is whether they will be able to convert that revenue and growth into sustainable profits (over time) given its enormous cost.»
Transversality and time
Much of what has happened and been published this summer confirms the strength of the AI phenomenon, both in business and personal life and in financial markets.
On the one hand, its cross-cutting nature and scalability mean that its progressive presence in practically all sectors of the economy ends up being a «must»; on the other hand, accepting that time will prove some of the arguments (detractors and supporters) wrong, with regard to the financial markets I agree with what investor Warren Buffett said : «the stock market is a mechanism for transferring money from the impatient to the patient .»
I think the use of the term «apparently» at the beginning of this column will now be clearer. Let’s continue.