While we believe the tactical valuation gap versus broader tech has been fixed, it has become increasingly clear that the global semiconductor industry is transitioning from a cyclical industry to a structural one powered by AI. With the AI rally broadening, we believe it's time to take a more structural position in both software and semiconductor industries.

Positioning for a broadening AI rallypdf, 644 KB

Following the recent strong rally in global semiconductors, we believe it's time to position for a potential broadening of the AI rally with structural exposure in both semiconductors and software.
 

We recommend a structural allocation of 20–25% to each of the semiconductor and software industries within global tech portfolios, vs. neutral exposure of around 20%, given both industries are well positioned to ride the AI wave long term. In the context of a global equity portfolio, investors should hold a 6.0–7.5% allocation to each industry, in our view.

Ahead of a broadening of the AI rally and in favor of more structural exposure, we close our short-term theme “Turning tactically positive on global semis" launched in October 2023. As the AI rally expands, we recommend a four-pronged approach to investing in the space. This strategy includes favoring big tech by size; US tech by region; semiconductors and software by industry; and our five AI trillion-dollar opportunities by key AI themes.

Semiconductor chip

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