Chart in Focus: Is AI a bubble, or is it driving real market value?

Figure 1

The scale of AI investment is unprecedented and the transformative potential of this technology across virtually every industry (and everyday life) is massive. This said, not all AI players will be winners.

What this means for investors

In our view, there are a few things to consider when it comes to seeking out the potential beneficiaries of AI investment:

• Infrastructure: Despite the massive scale of AI investment, infrastructure is already constrained. For example, there aren’t enough data centers offering the computing power needed to support AI expansion at the rate we’re going. To deliver on AI investment, further infrastructure buildout is required. What’s more, ramping up the infrastructure will require expansion in non-tech sectors, like utilities and energy, too. So, the infrastructure component of AI may have positive investment impacts further afield.
• Fundamentals: US growth is increasingly tied to AI. Infrastructure spend and tech earnings have supported GDP and equities, offsetting a tariff-induced drag we would have likely seen otherwise. The US economy has become more reliant on its already dominant sector, tech. This raises the stakes for the narrative of US exceptionalism. The higher a sector flies, the harder it could fall, so it’s important to be prudent about AI and tech allocations, focusing on quality and fundamentals.
• Ripple effects: Selection beyond tech is key. Many companies outside the tech sphere have already begun to adopt AI in their workflows and processes, though broad benefits have yet to manifest. This said, we see green shoots that are likely to blossom into greater return on AI investment as adoption accelerates and more companies integrate the technology more creatively across myriad industries.
• Big-picture thinking: Although public equities seem to get the most attention within markets and AI investment, the AI opportunity set extends across asset classes. In private markets, investments in nascent AI companies present long-term growth opportunities, for example, while in fixed income, AI is driving demand for utilities and infrastructure-linked credit. This speaks to the need for cross-asset expertise in AI investing — not just an understanding of the technology itself. An active approach with access to deep wells of research and broad-based capabilities may help investors take this kind of more holistic approach to this innovation.

What could change our minds

While we’re confident AI and the tech sector aren’t presently in bubble territory, we’d be remiss not to mention what we’re watching that could alter our outlook:

• Capex vs returns: Massive AI spend could deliver strong returns or risk overcapacity and falling return on investment.
• Strategic cross investments: These harken back to dot-com era loops and remind us of the downside risks inherent in dependent ecosystems.
• US Federal Reserve (Fed) policy: The interest-rate path today is more supportive than in the dot-com days; however, if it changes — perhaps because of tariffs or knock-on effects of the OBBBA — bubble risks could rise.

The bottom line

In our view, AI is driving real market value, and investors who can view the opportunity set through the lenses we’ve identified above may be poised to discern potential winners and losers.