Investors are questioning whether the artificial intelligence investment boom is becoming overdone, and whether we are in a bubble. To date, much of the data centre build-out has been financed with existing cash and operating cash flow. But we have started to see recent signs of concern emerge, such as the use of debt and complex equity investments and vendor financing deals.
At this stage, we think the AI investment theme can continue, however, we favour rebalancing portfolios to navigate growing concentration and valuation risks.
Investment opportunities: We believe there are AI opportunities that have more attractive valuations, particularly Chinese technology stocks. Also, the AI theme can play out along other angles. For example, companies that adopt AI may see cost efficiencies or new product offerings. Finally, strategies that broaden exposure beyond traditional market-cap-weighted approaches may be a prudent way to mitigate the risk of overexposure to a few of the largest AI-driven names.
