‘Too early to leave the party’: fund managers say AI stock boom still has room to run
News Summary
Despite mounting bubble fears surrounding artificial intelligence (AI) stocks, fund managers at Fidelity International and Allianz Global Investors believe the global rally in AI stocks will persist, driven by ambitious spending plans from AI developers and rapid user adoption. Joseph Zhang, a portfolio manager at Fidelity International, anticipates that the recent downturn in global semiconductor stocks, including adjustments ahead of Nvidia's earnings, is likely temporary and will rebound. He asserts that unless AI capital spending or usage slows, the “party” is still in its early stages, and it would be premature to exit. While investors like SoftBank Group and Peter Thiel have reduced their AI exposure, fund managers remain undeterred, suggesting a strong bullish sentiment. Significant commitments, such as Jeff Bezos' new AI venture, further bolster this view. Proponents consider the AI boom a once-in-a-generation technological revolution, making it difficult to dismiss as merely another stock trend.
Background
Artificial intelligence (AI) technology is currently experiencing explosive growth, particularly in chip manufacturing, software development, and application deployment. Nvidia, a leader in AI chips, has seen its performance and market valuation become a key indicator of the AI industry's health. The "Magnificent Seven" tech companies, including Nvidia, have been primary drivers of global stock market gains, especially in the U.S., over the past year. However, the market is also grappling with concerns about overvaluation in AI stocks, with some investors fearing a potential bubble. This apprehension has led prominent investors, such as SoftBank Group and Peter Thiel, to reduce their exposure to the AI sector. Amid global economic uncertainties, the sustainability of AI investments and whether the technology can truly deliver on its transformative potential remain central themes for market participants.
In-Depth AI Insights
What deeper dynamics, beyond mere optimism, underpin fund managers' 'early stage' view of the AI stock party? - Fund managers' confidence stems from a strong belief in the continuous advancement of AI technology and the expansion of its application scenarios. Massive investments by AI developers in infrastructure, R&D, and deployment, coupled with rapid enterprise and consumer adoption of AI services, constitute a robust demand driver. - This spending and adoption are not short-term phenomena but part of a long-term strategic transformation, indicating sustained market expansion for AI-related hardware and services. Even amidst economic challenges, companies are likely to prioritize AI investments to enhance efficiency and competitiveness. - The long-term disruptive potential of AI is seen as transcending traditional tech cycles, potentially ushering in a productivity revolution. This provides a theoretical basis for high valuations, differentiating it from past "bubbles." Given mounting bubble concerns, what critical indicators should investors monitor to assess the long-term risk-reward of AI stocks? - Capital Expenditure Efficiency and Returns: Observe how effectively AI companies convert massive capital outlays into tangible revenues and profits. If substantial investments fail to yield commensurate commercial success or establish strong moats, it could signal risk. - Competitive Landscape and Pricing Power: Evaluate the sustainability of competitive advantages held by major AI players and their ability to maintain strong pricing power and market share amidst new entrants and technological iterations. - Real User Adoption and Stickiness: Distinguish between hype and actual utility. Focus on the genuine user adoption rates, retention, and sustained growth in user spending for AI products and services, rather than solely on concepts or initial pilot programs. Against the backdrop of a continuing 'party,' how might capital flows and market structure evolve? - As AI technology matures and its applications deepen, capital may gradually shift from infrastructure (e.g., chips) to higher-value-added software, services, and vertical industry applications. This implies greater diversification of investment opportunities but also a higher demand for specialized knowledge. - The continued dominance of the "Magnificent Seven" might be challenged as new AI unicorns or transformed traditional industry players emerge, diverting capital and attention. This could lead to a slight decrease in market concentration and more opportunities in niche segments. - Given incumbent US President Donald Trump's "America First" policies and intensifying global tech competition, more capital may be directed towards domestic AI R&D and supply chain development. This could impact the global expansion strategies of multinational AI companies and exacerbate regional technological barriers.