Wealth Outlook 2024 - Slow then grow

83 Wealth Outlook 2024 | Unstoppable trends AI-propelled digitization in 2024: five areas of focus Considerations: • The most obvious beneficiaries of the generative AI revolution have already seen an expanded growth in their market cap in 2023, but there are potential opportunities as we enter the next stages of the buildout. • It is, most certainly, not too late for investors to participate in the exponential growth of artificial intelligence (AI) technology. While mega-cap tech leaders will continue to provide reliable exposure to the AI trend, we see areas like semiconductor equipment, robotics, drug discovery and cybersecurity as clear beneficiaries from the coming integration of AI into everyday business and personal lives. 1. Mega-cap AI leaders The basic theory behind AI models has been around for decades. The key to building human-like capabilities, for example writing code or even drafting this very article, is the development of a generative AI model that has access to lots of data and sufficient processing power. That’s how the mega-cap tech leaders have built their AI edge – they’ve spent decades aggregating data and designing superfast chips that stood to benefit first from the AI revolution. From this perspective, the big tech rally in 2023 is logical. We see the rise of the internet as a useful parallel for what’s to come for AI. Initially, in the early and mid-1990s, telecommunications firms that already controlled phone lines and were laying the most fiber saw their shares surge as excitement around the internet’s promise attracted significant investment. But as internet access became ubiquitous, benefits grewmore diffuse as nearly every individual and company saw productivity gains from the ability to use email or create a website to improve their business or quality of life. 2024 is likely to be a year of AI capacity buildout. This dynamic will play out in the aftermath of a period of restrictive financial conditions following the US Federal Reserve’s (Fed’s) two-year inflation fight. This means that scale and free cash flow will initially favor larger companies. That said, we see opportunities beyond the “Magnificent 7”¹ ¹ TheMagnificent Seven stocks: Amazon.com( AMZN), Apple (AAPL), Google parent Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). as ways to play AI over the long run. But we still think portfolios should have exposure to these companies in the year to come given their scale and incumbent status.