Big investors are shifting their focus from whether Big Tech’s spending spree on artificial intelligence (AI) will pay off to which companies will deliver returns over the longer term. Recent earnings results from Microsoft and Amazon have reassured markets that demand remains robust for the infrastructure that underpins AI.

Investment Strategies

Many significant asset managers retain significant positions in semiconductor stocks, even after a sector rout in July when doubts arose over whether AI spending was worthwhile and the challenge of rising Chinese competition. At the same time, they are adding exposure to the hyperscalers, or the biggest cloud service providers, whose scale allows them to rapidly expand AI infrastructure to meet customer demands.

According to Brian Barbetta, co-head of the technology platform at Wellington Management, which manages about $1.3 trillion in assets, “The hyperscalers are being recognised in this moment as companies that are likely to be very large beneficiaries of this AI paradigm shift.” Barbetta’s firm has increased its positioning in many of these companies recently.

Challenges and Opportunities

While the hyperscalers are expected to benefit from their investments, there are challenges ahead. Swiss wealth manager LGF+ZEST CIO Alberto Conca estimates that AI monetisation needs a significant increase to justify current spending plans. Additionally, competition is expected to narrow the field of AI winners as the market matures, with companies having the broadest technology portfolios, deepest customer relationships, and greatest control over their own infrastructure likely to pull ahead of more specialised rivals.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.