Opportunities on the Horizon: Investing Through a Slowing Economy

Thematic Updates | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 60 What to do now Pure AI equity investment opportunities are few and far between. The most advanced AI development platforms are either privately held or housed within large companies with diverse sources of revenue. That said, we see potential growth opportunities in companies that provide the computing and infrastructure that power AI ( FIGURE 2 ) . These include hardware manufacturers making advanced semiconductors and infrastructure providers such as cloud computing vendors. Secondary parts of the generative AI ecosystem stand to benefit as well. Semiconductor capital equipment companies that produce the machines that manufacture AI-optimized chips should see increased demand ( FIGURE 3 ) . Cybersecurity companies are another obvious initial beneficiary that may be underrated. And finally, we will be highly mindful of the companies that adopt the technology in their products and operations. Increasingly sophisticated AI models will make robots more productive and autonomous vehicles more reliable. Services-oriented companies that can embed AI effectively into day-to-day processes will begin to improve their enterprises’ quality, value, efficiency and profitability. We expect, over time, to see trends emerge and to see companies report on how they are using generative AI in their operations. Intuitively, AI will be able to track the use of AI. That’s the whole point. This technology will build upon itself. Firms that do not embed this technology into their business practices may see their competitive positions will erode. FIGURE 3 : Shares in Industry Groups Tied to AI in 2023-to-date 81% 28% 18% 14% 2% 0 10 20 30 40 50 60 70 80 90% AI Leaders Software Robotics Cyber security Future mobility (autonomous cars) Return (%) YTD Return of AI beneficiaries Source: Bloomberg as of May 31, 2023. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary.