Tech sector outlook from fund managers
Fund managers Schroders and Fidelity have updated their views on the tech sector, identifying growth opportunities from expanded capex spending, particularly in the areas of software and AI. According to the report, portfolio managers at the two firms discussed the effect of AI and its vast capex spending during separate webinars.
Fidelity is bullish on AI in Asia, noting that developed Asian economies still run on surpluses, with China, Korea, and Taiwan singled out as having good surpluses. The firm points to AI capex as a growth driver in Taiwan and Korea, and expects this trend to persist over the next 12 to 18 months.
AI Growth in Asia
The fund manager sees governments supporting growth in tech, with South Korea accelerating AI and semiconductor investments, and Taiwan seeing savings being brought back onshore to fund investment. Peiqian Liu, Asia economist at Fidelity, said “Mainland China is redirecting investment from property to AI, advanced manufacturing and energy”.
Ian Samson, portfolio manager, believes the AI story is not under threat in Taiwan and Korea, and that capex is “very much baked in” for the next two years, driven by large US companies like Anthropic and OpenAI. Samson also believes that valuation corrections over the past few months have made AI investing compelling in Asia, particularly in semiconductors, infrastructure, and power supply.
Fidelity also identifies appealing forward P/Es and tight supply in semiconductors as a boost for company margins. Looking ahead, Samson sees AI investing as an edge in a high interest rate environment, noting that “The AI story is quite insulated from interest rates”.
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Schroders’ View on Software Space
Meanwhile, Schroders analysts point to the resilience of the software space, with Jennifer Odjugo, equity analyst, highlighting that every company can share anecdotes on how AI boosted its productivity. However, she notes that she hasn’t observed any significant layoffs occurring that are directly linked to AI, describing staff layoffs seen at Block or WiseTech as being about resizing rather than being properly AI-linked.
Schroders argues that AI-capex provides some benefits in the space, as it is a sign of interest in the technology, and that AI companies will be able to charge more for their products, supporting an investment case. The asset manager also points to the inflationary effects observed so far, particularly in hardware having become more expensive, such as memory chips or products from companies like Apple.
Martin Conlon, head of Australian equities, pointed to an inflationary effect across the economy, with companies potentially being charged more for the technology, and data centres occupying strategic real-estate.
Investment Outlook
In terms of investment outlook, both Fidelity and Schroders seem to agree that the tech sector, particularly AI and software, presents growth opportunities. As Ian Samson noted, the AI story is “quite insulated from interest rates”, which could make it an attractive investment option in a high interest rate environment. However, it’s worth considering the potential inflationary effects of AI, as highlighted by Schroders analysts, and how they may impact the broader economy.
They will be watching the tech sector closely. Growth opportunities are available.
