Jeremy Burge of Capital Group emphasizes diverse AI investment opportunities across global markets
In an exclusive feature from Benefits and Pension Monitor, Capital Group equity portfolio manager Jeremy Burge and equity investment specialist Kathrin Forrest discussed critical investment opportunities in artificial intelligence (AI).
As AI revolutionizes the investment landscape, investors seek to capitalize on opportunities beyond tech giants like Nvidia. Burge noted, “AI is creating opportunities for companies well beyond the big, early winners.”
He emphasized that AI's potential spans all market sectors, industries, and regions, enhancing worker efficiency and business productivity. The software-based nature of AI allows for rapid implementation and economic impact.
Burge highlighted the importance of asking the right questions to identify investment opportunities: “Which parts of the value chain are poised to benefit, and in what order? Which geographies are going to be farther ahead or behind on adoption? Which companies are poised to lead as critical suppliers or makers of the necessary tools and equipment? Who’s going to be hurt? And which companies stand to benefit from secondary and tertiary knock-on effects?”
The compute segment, involving semiconductor chip designers, equipment manufacturers, and foundries, presents immediate investment opportunities. For example, Nvidia has seen a surge in demand for its GPUs used to build and train AI models.
Burge anticipates broader opportunities in “picks and shovels” equipment providers, such as semiconductor equipment makers (Applied Materials), chip foundries (TSMC), and memory chip suppliers (SK Hynix).
Kathrin Forrest added that other opportunities might lie in companies providing specialty chemical solutions. The infrastructure segment, including cloud companies, data centres, and networking firms, also offers potential due to AI's growth.
McKinsey & Company projects global spending on data centre construction to reach US$49bn by 2030, benefiting equipment suppliers and electricity providers.
Forrest noted, “The approach to innovation, the role of regulation, ability to source scarce inputs, competitive pressures, and customer preferences all play a role in creating differentiated opportunities and risks for companies.”
AI models, like Microsoft-backed OpenAI’s GPT-4, Meta’s Llama, and Alphabet’s Gemini, require substantial data, computing power, and specialized engineers, presenting commercialization opportunities.
The application segment of the AI value chain holds broad investment potential, with early examples like Microsoft’s CoPilot in Office subscriptions. AI's applications span all GIC sectors, with notable impacts in healthcare and financials.
Forrest emphasized the importance of a diversified portfolio: “We need to get more than just AI right,” indicating the need for a balanced approach to deliver long-term, superior results.
