CIO thinks this will unlock new value across a number of sectors, and they expect thematic investments aimed at technology disruption to outperform their benchmarks in the medium to long term.
The AI application and investment rush is a powerful new narrative for tech.
- US tech has outperformed in 2023, powering higher on strong investor interest in AI-sensitive stocks and industries.
- We now forecast a 61% compound annual growth rate (CAGR) for AI end-demand during 2022–27.
- Near-term catalysts include “copilots” in office software, big data analytics, and AI integration in images, video, and other enterprise applications.
But the story is broader, with more reasons than just AI to be constructive on tech.
- US tech company balance sheets are strong, a positive driver in a period of high interest rates and slowing economic activity.
- Earnings revisions are improving, adding to confidence that key end-markets are reaching a trough.
- Historically, quality growth stocks have tended to perform well during the later stages of the business cycle.
So, we recommend building exposure and positioning for technological disruption across industries.
- We have raised the global and US information technology sectors to neutral from least preferred.
- Among tech disruptors, we like platform companies with network effects in industries like internet and software, as the impact of artificial intelligence broadens.
- We also like enablers exposed to trends like cloud, big data, and AI, including software and solution providers.
Did you know?
- The IT segment is the most global of all the S&P 500 sectors. More than 58% of its revenue comes from outside the US, versus 40% for the index as a whole.
- Disruptive innovation, a term coined by Harvard University professor Clayton Christensen, refers to processes in which a product or service takes initial root in simple applications at the bottom end of a market before moving relentlessly up the value chain and eventually displacing established competitors.
We have raised the global and US information technology sectors to neutral from least preferred. Thematic investing along the lines of technology disruption could drive outperformance versus benchmarks in the medium to long term.
Main contributors - Jon Gordon, Sundeep Gantori
Original report - How can I benefit from tech disruption?, 18 September 2023.