AI investment goes beyond the seven giants of US stocks, Schroder Investment: This industry is facing significant investment opportunities
Schroder Investment released a report stating that the seven tech giants in the US stock market have benefited from the optimistic expectations of the financial market for the development of the artificial intelligence business, leading the US stock market since last year. The report believes that by 2024, the gap between M7 and other global stocks will gradually narrow, which is positive, and the narrowing gap may help drive dominant technology themes to continue expanding in the financial market. Schroder Investment also has a positive outlook on European stocks, large-cap stocks in Japan, and industrial stocks
According to the Zhītōng Finance and Economics APP, the head of diversified asset management in the Asia-Pacific region at Schroders Investment, Yu Xueyu, stated in a report that although U.S. stocks appear to be overvalued, there are several positive factors in the fundamentals: as S&P 500 index component stocks enter the peak earnings season, nearly 80% of companies have exceeded market expectations for profit growth; 60% of companies have also outperformed revenue estimates; the U.S. nominal economic growth remains robust; strong consumption data continues to benefit corporate earnings and performance.
Yu Xueyu further stated that although the overall valuation of U.S. stocks seems to be on the high side, the continuous growth in company sales revenue and profit margins, as well as improvements in the macroeconomic environment, will continue to support the stock market. A reasonable adjustment in the stock market in April 2024 prompted the company to increase its holdings of stocks.
The seven tech giants (M7) in the U.S. stock market have benefited from optimistic expectations for the development of artificial intelligence (AI) businesses in the financial markets, leading the U.S. stock market since last year. Schroders Investment expects that the gap between M7 and other global stocks will gradually narrow in 2024, which is positive. In addition to changes in relative growth rates, the narrowing gap may help drive the continued expansion of leading technology themes in the financial markets.
The report points out that there are divergences in the global economy, coupled with varying corporate profit performances across regions, all of which continue to support diversified investment allocations. Yu Xueyu stated that based on the positive consumption outlook in Europe, he increased holdings in European stocks, while also observing the expanding global economic recovery, mild interest rate environment, and more attractive stock market valuations. He also identified some undervalued opportunities for corporate profit growth in the European stock market.
Schroders Investment also sees potential in some attractive large-cap and industrial stocks in Japan. Yu Xueyu pointed out that Japan has benefited this year from continued loose monetary policies, as well as higher capital allocation and shareholder returns brought about by improved corporate governance, leading to strong economic fundamentals and sustained corporate profit growth.
Yu Xueyu also mentioned the possibility of Japan entering a phase of moderate inflation, with wages and prices forming a positive cycle. He stated that by the second quarter of 2024, as Japanese companies are able to pass on rising costs to final product prices, corporate profits could reach new highs, potentially even contributing to wage growth.
From the perspective of thematic investments, Yu Xueyu believes that two major themes to watch this year are: commodities and energy stocks remain attractive, as they can provide effective hedging for the current tense geopolitical situations in the Middle East and Ukraine.
Schroders Investment's global resources stock team has pointed out that AI brings significant investment opportunities to the energy industry. As AI technology advances, the pace of data center construction and power consumption will continue to increase, with the prerequisite of expanding electricity production and transmission efficiency in sync to meet demand.
Citing data from Thunder Said Energy as of April 2024, the report indicates that from 2010 to 2023, the compound annual growth rate of electricity demand related to data centers was 14%, while the global total electricity demand only grew at an annual rate of 2.5% during the same period.
Yu Xueyu stated that against the backdrop of ongoing concerns about geopolitical situations, the company will prioritize considering the yield adjusted for credit quality and increase holdings in investment market areas that are believed to effectively diversify risks in the future