Key message
Tech sector volatility has picked up in 2025 so far on both disruption and tariff risks. But we also expect robust capital spending and further progress on AI monetization, with strong earnings supporting our preferred stocks. We view the US IT sector as Attractive due to its promising fundamentals, and recommend investors use any near-term volatility to build up sufficient exposure to quality AI stocks.
We are positive on AI and recommend investors take advantage of any near-term volatility to build up sufficient exposure to quality AI stocks.
New this week
The EU Commission on 28 March said it would invest EUR 1.3bn in AI, cybersecurity and digital skills over the next 2 years in a bid for "tech sovereignty". Microsoft has reportedly backtracked on several large data center projects amid changes to its cooperative strategy with OpenAI. Elon Musk's xAI acquired X (formerly Twitter) for USD 33bn, in a deal to combine "data, models computer, distribution and talent."
Investment view
With strong near-term visibility for tech earnings, we remain bullish on the AI theme and maintain our positive view on AI semiconductors and leading cloud platforms. We recommend taking advantage of any near-term volatility to build up exposure to quality AI stocks via buy-the-dip and structured strategies.
Did you know?
- The 'Magnificent 7' were responsible for more than half the S&P 500鈥檚 gains in 2024.
- Though valuations have come off, tech has still helped pull the S&P 500's forward price-to-earnings to 20.5x, a step above both its 10- and 20-year averages of around 18x and 16x, respectively.
- The artificial intelligence market potential is large鈥攚e estimate that AI value creation could amount to USD 1.16 trillion by 2027.
1. AI will be the most profound innovation and one of the largest investment opportunities in human history
2.聽The ratio of monetization potential of the AI application layer to the costs of the enabling and intelligence layers will become a key metric for investment returns
3.聽AI will kick off a data center capex cycle that will dwarf general purpose data center capex in the next years
4.聽The AI silicon moment: AI chips will capture a large part of the AI value creation
5.聽The AI enablers will be the first adopters of AI, driving both revenue and margin upside
6.聽Monolithic players will emerge along the AI value chain and over time, the AI market will be dominated by an oligopoly of vertically integrated 鈥淎I foundries鈥�
7.聽Software will become ubiquitous
8.聽Data assets will emerge as the competitive differentiators for AI adopters
9.聽Despite the increasing number of new open-source models, proprietary models will remain the top performers
10.聽The application and intelligence layers will merge with artificial general intelligence (AGI)
Want to learn more?
Artificial Intelligence (AI):
Sizing and seizing the investment opportunity
Releasing soon
Layer by Layer:聽Artificial Intelligence insights
Layer by Layer:聽Artificial Intelligence insights
Layer by Layer explores the fascinating and evolving world of artificial intelligence, how it's transforming industries, redefining what's possible and reshaping the future.
