TECH: Big-tech stocks have driven all before them this year. The NASDAQ is up 24% and S&P 500 10%. Whilst the equal-weight S&P 500 index and closely followed, but Value-heavy, Dow index are flat. This tech ‘reversal rally’ from 2022 losses has three supports: 1) a cost-cutting and artificial intelligence (AI) driven return to earnings growth, 2) investor revaluation of big tech’ fortress balance sheet and wide profit margin attributes, and 3) lower bond yields easing the valuation ceiling. NVIDIA has led the move from AI hope to revenue reality. This has also remade the case for thematic investing. Retail investors were early into this AI boom. Whilst the underperformance of AI-driven ETF is a reminder that it’s not infallible. See @AI-Revolution.
REALITY: Artificial Intelligence was mentioned as long ago as 1956 at a DARPA conference. But it needed advances in computing and storage power to drive the surge in R&D seen in only the past three years, and November’s launch of ChatGPT to capture broader investor attention. NVIDIA’s (NVDA) dramatic Q2 $11 billion revenue guidance last week, 50% higher than forecasts, marked the next step. When AI dramatically moved from being a market-hope to a revenue-generating reality, and propelled the stock into the rarefied $1 trillion market-cap club.
THEMATIC: Semis led AI’s rally, but its breadth across software, search, industrials, and health care revitalized the thematic investing case after some tough years. Thematic fund assets fell 40% from mid-2021 peaks and new launches dried up. Their assets are twice pre pandemic levels but still a fraction of the traditional country and sector funds that struggle with these cross-sectional trends. Retail investors have again been early adopters. Our Q1 global retail investor survey showed 54% keeping/increasing AI investments, double the 21% avoiding/ cutting. But the poor performance of the AI-powered AIEQ ETF is a reminder AI is not infallible.
All data, figures & charts are valid as of 30/05/2023