Jeremy Burge of Capital Group highlights the diverse AI investment opportunities in global markets.
In an exclusive feature for Benefits and Pension Monitor, Capital Group’s Equity Portfolio Manager Jeremy Burge and Equity Investment Specialist Kathrin Forrest discuss the key investment opportunities in artificial intelligence (AI).
As AI revolutionizes the investment landscape, investors are looking to capitalize on opportunities beyond tech giants like Nvidia. “AI is creating opportunities for companies that go far beyond the big early adopters,” Burge said.
He highlighted that AI’s potential spans all market sectors, industries and geographies to improve workforce efficiency and business productivity. Because AI is software-based, it can be rapidly adopted and has an immediate economic impact.
Burge emphasized the importance of asking the right questions to identify investment opportunities: “Which parts of the value chain will benefit, and in what order? Which regions will be ahead or behind in adoption? Which companies are in a leading position as critical suppliers or manufacturers of needed tools and equipment? Who will be hurt? And which companies will benefit from second and third order knock-on effects?”
Immediate investment opportunities exist in the computing space involving semiconductor chip designers, equipment manufacturers and foundries: Nvidia, for example, is seeing surging demand for its GPUs, which are used to build and train AI models.
Burge sees a wide range of opportunities for “pick and shovel” equipment providers, such as semiconductor equipment makers (Applied Materials), chip foundries (TSMC) and memory chip suppliers (SK Hynix).
Kathryn Forrest added that companies that provide specialty chemical solutions may also see other opportunities. Infrastructure sectors such as cloud companies, data centers and networking companies also see potential due to the growth of AI.
McKinsey & Company predicts that global spending on data center construction will reach US$49 billion by 2030, benefiting equipment suppliers and power companies.
“Approaches to innovation, the role of regulation, the ability to source scarce raw materials, competitive pressures and customer preferences all play a role in creating differentiated opportunities and risks for companies,” Forrest noted.
AI models such as Microsoft-backed OpenAI’s GPT-4, Meta’s Llama and Alphabet’s Gemini require large amounts of data, computing power and specialized engineers, creating opportunities for commercialization.
There is a wide range of investment potential in the application segment of the AI value chain, with an early example being Microsoft’s CoPilot in Office subscriptions. Applications of AI span all GIC sectors, with notable impacts in healthcare and finance.
Forrest stressed the importance of a diversified portfolio, saying that “getting AI right isn’t enough,” suggesting that a balanced approach is needed to deliver long-term, superior results.
