From the studio

Video: Investors Club | US equity positioning and the Australian dollar (9 mins)
Video: Deep Dive | CIO's Themis Themistocleous on European opportunities (6 mins)
Video: The AI Show | US tech earnings and positioning (4 mins)
Video: CIO's Jeff Harwood on opportunities in US financials (6 mins)

Thought of the day

A rally in technology shares led the gains in US equities on Tuesday, with the Nasdaq up over 1% amid improved investor sentiment. Anthropic, whose Claude CoWork recently triggered a sell-off across sectors deemed vulnerable to AI disruptions, announced new ways for business customers to connect its technology to key areas of their work. This was viewed as building partnerships rather than displacing existing businesses.

Whether such market confidence can be sustained in the coming days will partly depend on NVIDIA’s earnings, due later today after trading closes. With hyperscalers having announced another step-up in capex in recent weeks, markets expect the chipmaker to forecast revenue above consensus estimates alongside strong sales growth.

Without commenting on single securities, we emphasize the importance of broadening AI exposure to capture the full range of opportunities the technology offers.

Diversify beyond US tech for above-benchmark positions. We recently downgraded both the information technology and communication services sectors to Neutral, as we see a less compelling risk-reward profile. Based on company guidance, the largest hyperscalers are set to spend over USD 650bn this year, which will consume nearly all of their operating cash flows, while competition in the software and advertising businesses looks set to inflect higher amid AI advances. The race among AI model developers has also intensified, and leadership could shift quickly at this early stage of development. In our view, this means that investors with above-benchmark exposure to US IT and communication services should consider hedging or diversifying their positions toward other sectors with more favorable risk-reward, including industrials, financials, health care, utilities, and consumer discretionary.

Consider opportunities in China's tech sector. Unlike in the US, we believe the potential capex acceleration in Chinese tech companies should still be rewarded at this stage of the cycle. Chinese tech leaders currently invest only a fraction of the capex deployed by their US peers, and we expect Chinese hyperscalers to announce increased spending plans in upcoming earnings reports, supported by aggressive hiring and faster AI execution. This should set the stage for more visible AI progress this year, in our view, including stronger foundation models and more innovative applications. While DeepSeek has yet to release its much-anticipated V4 model, other recently announced Chinese AI models have demonstrated robust capabilities while remaining cost-effective. Given Beijing’s explicit support for homegrown AI models and chipmaking advancement, we continue to believe that China’s tech sector should benefit amid renewed global attention to its AI competitiveness.

Position in supply chain across Asia and Europe. Asia and Europe’s supply chain also offers a diversification opportunity for investors underexposed to the secular theme. For example, supply and demand in the memory chip market is at its tightest in 40 years, and we expect foundries, chip packaging companies, networking firms, substrate, and semicap firms to benefit from supply bottlenecks and ongoing strong demand for AI compute, although rising valuations warrant a balanced exposure. Additionally, Japan offers opportunities in robotics and automation, while select European semi companies should benefit from a potential recovery in the industrial cycle.

So, we recommend diversifying AI exposure across sectors and geographies as the landscape continues to evolve amid rapid development.