From the studio

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Thought of the day

Semiconductor companies led stock declines on Tuesday in a risk-off session amid the ongoing closure of the Strait of Hormuz. Sentiment was also dampened by higher US inflation, which boosted expectations for the Federal Reserve to raise interest rates and pushed Treasury yields higher across the curve. The Philadelphia Semiconductor Index fell as much as 6.8% before closing 3% lower, the largest drop in two weeks. The S&P 500 and the Nasdaq fell 0.2% and 0.7%, respectively, from their all-time high.

But while macro uncertainty remains, recent developments in the tech field have reinforced our conviction in the long-term potential gains on offer in AI.

Consumer agentic AI may be the next growth driver. Alphabet’s Google this week announced upcoming features for its Android operating system, which includes advanced capabilities powered by Gemini and will serve as an AI agent that anticipates needs and executes multi-step tasks such as booking rides. Without taking any single-company views, the move shows the growing momentum in consumer agentic AI, following Chinese internet platforms’ integration of OpenClaw into their services. More broadly, we think consumer agentic AI demand could be the next growth leg for the technology, alongside robust enterprise demand. Anthropic, for example, has reportedly achieved an annualized revenue run rate of near USD 45bn, up from around USD 9bn less than six months ago.

Supply bottlenecks should continue to underpin the performance of the AI supply chain. While markets await NVIDIA’s earnings due next week, key companies in the AI supply chain have delivered robust first-quarter results. Supply bottlenecks and price increases are no longer confined to the well-telegraphed memory segment, but also evident across CPUs, substrates, multilayer ceramic capacitors (MLCCs), back-end packaging, and other AI-related components, highlighting the increasingly broad nature of the current AI cycle. The sustained momentum in capital expenditure across large tech platforms should also continue to flow through to the semiconductor and hardware supply chains.

Robust monetization has eased some concerns over higher capex. While incremental AI capex alone is not sufficient to drive the performance of AI stocks anymore, evidence of monetization has continued to build. Growth across the four major cloud providers accelerated to an estimated 40% year- over year in the first quarter, up from the 34% growth in the fourth quarter of 2025. With an aggregate order backlog of around USD 2tr based on company reports, we expect cloud growth to accelerate further and approach the 45-50% level in the second quarter. This pace of monetization should help relieve some investor concerns over higher capex and incremental debt issuance.

So, with innovation likely to remain key in driving long-term equity gains, we recommend staying invested in AI. We recommend a diversified and active approach to AI exposure, across the entire value chain and geographies. We favor platform and application beneficiaries that are well placed for AI use cases, as well as infrastructure names with strong pricing power and competitive positioning in their respective supply chains.