Certainty vs. Scepticism: Unveiling the Future of Tech Investments Amidst AI's Rise

“Silicon Valley experiences upheaval!” “Elon Musk says AI will put an end to work!” “Social media platforms’ AI bots put privacy at risk!” - Every week scaremongering AI headlines overflow the news cycle. 

But can technology and AI companies provide the investment certainty investors need?

Allianz Technology Trust’s Mike Seidenberg dialled in from the San Francisco Bay area, a stone's throw from tech haven Silicon Valley, to sit down with The Association of Investment Companies (AIC) ’s Annabel Brodie-Smith. Despite technology's pervasive role in daily life, its full potential remains untapped—from functionality and speed to safety and adaptability. AI provides the opportunity to automate a company’s operations leaving those within the business to focus on strategy and growth-centric tasks, he suggests. 

During his interview with Brodie-Smith, Seidenberg asserted such transformations can only occur when companies abandon traditional methods of storing data on legacy technology and embrace cloud solutions. In this stock-taking process, they can see where AI has the potential to be integrated. This can be seen as a more traditionalist view. A modernist might say that through empowering the workforce AI can be integrated simultaneously, for example through the use of large language AI models such as ChatGPT and Bard. 

While numerous companies transitioned to the cloud or co-working platforms in the last four years, experiencing substantial growth during COVID, Seidenberg noted that only 12% of the global workload is currently stored on the cloud. Amidst the shift to hybrid work environments and the increasing scope of cyber warfare on both corporate and nation-state fronts, Annabel Brodie-Smith questioned Seidenberg on cybersecurity’s growing importance.

AI: New Frontiers

Amidst the uncertainty of interest rate volatility, government instability, and global political tensions the British Government laid their AI intentions stake in the ground. In October, Prime Minister Rishi Sunak pledged £100 million for AI investment in life sciences and healthcare. In 2022, AI contributed £3.7 billion to the UK economy, and with the sector presently valued at £16.9 billion, it is projected to reach approximately £804 billion by 2035; giving the sector an exponential growth rate of 138% per year. In the recent Autumn statement, Jeremy Hunt committed £500m over the next two years to fund more "innovation centres" to help make the UK an "AI powerhouse".

In our second interview of the morning, Iain Pyle CFA, ACA sat down with Fidelity International’s Andrew Oxlade. Pyle highlighted the UK as a compelling investment market despite high inflation and expected low productivity. Shires Income offers an interesting perspective as a UK-centric fund it has seen opportunities for investment at home. The choice is influenced by its status as an AI hub, paired with strong commodity exposure, significant changes in small and mid-cap companies, and one of the highest equity yields.

Pyle’s optimistic outlook found resonance with Witan Investment Trust plc, which, in recent months, has displayed a positive stance on long-term productivity owing to increased AI adoption and efficient capital utilisation. During a fireside chat at the studio, Witan’s James Hart engaged in a conversation with Emma Bird, CFA from Winterflood Securities, where Hart emphasised the economic advantages of AI and identified it as a substantial investment opportunity.

Outlook for 2024

Looking ahead to 2024, Hart outlined a potential for substantial returns, referring to a "triple whammy" effect caused by low valuations in portfolios, gearing, and discounts. This, he believes, creates a promising outlook for the future. The overall sentiment from the speakers throughout the morning was one of optimism, projecting a market recovery. Hart specifically expressed positivity for the next 12 months, foreseeing a favourable 2024 marked by a broadening equity market. Seidenberg shared his anticipation of increased investment certainty, particularly in technology stocks. However, Pyle issued a cautious note, warning of the possibility of a "normal recession" in 2024.

Given the year-long challenges faced by the market, scepticism naturally arises. The question emerges: should we accord more credibility to the current positive statements, and do they align with the available evidence? Only time will provide the answers.

For a more in-depth understanding, you can access the replay of the interviews on our Investment Trust Hub.

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Other topics of discussion throughout the morning: 

• Arbitrages 

• Buybacks and volatility

• ESG and impact investing

• Mid-cap opportunities

• Rate fluctuations 

• Self-management on boards 

• The Magnificent Seven 

• The Shires/abrdn merger