From the studio

Podcast: CIO's Kiran Ganesh on AI FOMO and valuation concerns on Apple, Spotify (18 min)
Podcast: Global and Asian tech: Buy the dip or take profit? (8 min)
Video: Our new AI capex forecast and its implications to the AI story (4 min)
Video: Three reasons why we’re still bullish on gold (3 min)

Thought of the day

Tech shares underperformed on Wednesday as investor concerns over the sustainability of the AI rally persisted. The S&P 500 edged up 0.1%, while the Nasdaq fell 0.3%.

But the pace of AI-related activity shows no signs of slowing. AMD shares jumped 9% after the company forecast accelerating sales growth over the next five years; Anthropic said it would invest USD 50bn in building data centers in the US; and Meta confirmed that it will build a USD 1bn data center in Wisconsin. Meanwhile, Infineon said AI data-center-related revenue in fiscal year 2026 should more than double, and Cisco raised its full-year forecast for profit and revenue as it benefits from booming AI spending.

Without taking any single-company views, we maintain our conviction that the structural growth of AI will continue to drive equity performance. Investors should also consider exposure to companies aligned with our Power and resources theme, as strong capital spending on AI infrastructure should provide an ongoing catalyst.

AI demand and monetization have accelerated. While investors await NVIDIA’s results next week, recent tech earnings consistently indicate stronger-than-expected demand for AI compute and services. We believe such demand warrants the increasing capital spending announced by tech companies, and expect accelerating AI monetization to narrow the gap between investments and revenue. With leading tech companies maintaining strong balance sheets, and the modest percentage of AI spending relative to global GDP, our calculations suggest that future productivity improvements will be sufficient to justify ongoing AI investments and related depreciation.

Rising AI capex benefits the Power and resources value chain. Growing AI capex amid rising data center demand not only bodes well for electrical equipment companies, but also leads to continued investment in grid infrastructure, supporting the case for our Power and resources theme. Indeed, electrical equipment and infrastructure companies reported accelerated order momentum and expanding backlogs during the recent earnings season, while utilities firms saw a strong pipeline of demand opportunities and investments in new capacity. Overall, we forecast around USD 3tr in combined annual investment by 2030 in power generation, energy storage, grid infrastructure, data centers, and transportation and industry.

Valuations remain reasonable despite market strength. We do not believe we are in a bubble now. While equity valuations are elevated, they may not be as extreme as they appear at first sight. This is because the composition of the market has changed over recent decades, skewing more toward sectors with higher multiples, such as IT and communication services. Current valuations are also well below levels seen in prior bubbles—top tech firms are trading at a 12-month forward multiple of 30 times, while leading tech names were trading at a multiple of over 70 times in 1999. The current economic and monetary policy conditions are also benign—rates are falling, and the economy is relatively resilient.

So, as innovation remains a key driver of long-term equity performance, underallocated investors should add exposure to beneficiaries of AI and Power and resources while maintaining a diversified portfolio.