Zenith calls for ‘healthy’ AI stock allocations

20 February 2024
| By Jasmine Siljic |
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Zenith Investment Partners has highlighted the importance of a diversified investment approach to holding artificial intelligence (AI) stocks.

Investors are increasingly looking towards the “Magnificent Seven” group of AI-centric stocks (Apple, Alphabet, Amazon, Microsoft, Meta, Nvidia and Tesla) for technology exposure.

However, Zenith investment consultant Calvin Richardson has reminded investors to not rely on a concentrated number of players.

“Portfolios should maintain a healthy AI allocation without relying solely on specific stocks. As such, our portfolios have retained a robust allocation to the AI thematic through our technology exposures, yet without relying on a concentrated bet on these tailwinds,” Richardson explained.

The investment firm’s largest international shares holding is Microsoft, particularly as the tech giant looks to charge an additional fee to consumers who use its Copilot AI feature which is embedded in Word, Excel, PowerPoint, Outlook and Teams.

“In addition to Microsoft, our second-largest international holding, Alphabet, is likewise aggressively competing in the AI arms race,” Richardson continued.

The tech company recently launched a generative AI model capable of ingesting video, audio and text, in competition with Microsoft’s investment in ChatGPT.

“Apple also features prominently in our portfolios and is similarly investing heavily in AI. Relatable examples of this include enhancing how users can search for photos in their iPhone (i.e. searching via location), interacting with Siri and Face ID.”

As these tech firms look to monetise their existing customer base, Richardson believes this will present “incremental revenue opportunities”.

“If companies like Microsoft can successfully embed themselves within their customer base, their competitive advantage strengthens and the moat around their business becomes increasingly impenetrable,” he said.

In addition, firms will utilise AI to automate certain tasks, such as data entry, and ultimately enhance business efficiency to reduce costs and increase profits.

Natixis Investment Managers (IM) also examined the AI investment trend in Australia. Its recent report found that 75 per cent of Australian respondents say AI is here to stay in the investment landscape, contrasting fears that the technology is a bubble.

Nearly seven in 10 (69 per cent) believe these new technologies will assist them in unlocking investment opportunities which were not clearly visible before, while 44 per cent think AI presents even larger opportunities than the internet.

Last month, Hyperion Asset Management and Munro Partners identified AI as a trend they are embracing in 2024, which could greatly reward market leaders.

The $2.4 billion Hyperion Global Growth Companies Fund holds shares in companies such as Amazon, Microsoft and Spotify among its top five holdings, while Munro holds Nvidia, Amazon, Microsoft and Alphabet in its top five in the Munro Global Growth Fund.

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