As the massive disruptive potential of artificial intelligence (AI) continues to enthrall markets, fund managers are looking further ahead to spot potential winners outside of the tech sector.
According to PwC’s Global Artificial Intelligence Study, AI is on track to have a global impact of over $15 trillion in the next seven years. With the help of strategic investments in different types of AI technology, it expects to see AI transform the productivity and GDP potential of the global economy, lifting total gains by some 45 per cent by 2030.
In the last reporting season, major tech players such as Alphabet and Microsoft reported massive quarterly earnings spurred by AI investments of $74.6 billion and $20.1 billion respectively.
Outside of these usual suspects, Mary Manning, portfolio manager at Alphinity Investment Management, identified medium term winners in the sector such as network equipment company Arista, computer software company Cadence, and semiconductor company ASML.
“Medium terms winners in the tech sector are often infrastructure companies where it’s going to take six to 24 months to be able to see it in their earnings,” she said at the Fidante Equity Symposium in Sydney.
“We’ve owned ASML for a long time, but we don’t own the others yet because we’re waiting to be able to see it in their earnings.”
She shared that she is most excited about the beneficiaries of AI not in the tech space but to players like Airbnb, online marketplace Mercado Libre, and even the Bank of America (BofA).
In March, BofA global research noted more data is created per hour today than in an entire year just two decades ago, with global data expected to double every two years. This spurred the need for AI to assist in analysing and interpreting it, the firm said.
Similarly, Airbnb is set to benefit from AI technology through predictive pricing, predictive searches, and customer profiling, according to technology consulting firm BDO Digital.
Manning added: “What we’ve learned is some of the biggest winners are going to be outside the tech sector [like] the banks, other financial institutions, industrials, energy as they put AI into their business models, and they either increase revenue or use it to decrease costs.
“However, it’s too early for that thematic; you can’t see it in earnings right now. That’s probably a 2025–2030 earnings story.”
Blackwattle Investment Partners portfolio manager, Ray David, agreed that while adoption and technology evolution are gathering pace, the hype can often precede the actual economic facts.
Writing on LinkedIn, he said: “Technology cycles can be long, and it will be years before the actual winners and losers in terms of profits generated will be evident. Initial winners will be service and hardware providers providing the ‘picks and shovels’ to corporations using AI tools.
“Beyond that, it will be management teams that can successfully exploit efficiency benefits to improve business processes to better serve customers or reduce costs.”
He highlighted the ASX companies that had embraced AI tools to exploit benefits, including supermarkets to predict stock and reduce theft at checkout; online classified to use dynamic pricing and yield management to grow sales; and general insurance to resolve better risk pricing and predict claims.
David said: “While investors may not see these companies fitting the AI beneficiary narrative, they are sensibly starting to build out competitive advantages by being early adopters of AI tools.
“Ultimately, companies that can extend their moat by improving customer outcomes and deliver higher returns will be true winners of the AI revolution.”
