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The growth of artificial intelligence has brought consistent positivity to US stock markets this year, with the significant rise in the shares of the top tech companies propelling the S&P 500 into a bull market. Despite concerns about inflation and the health of the financial sector, active fund managers have continued to show strong ownership of big tech stocks.
Wall Street banks are now guiding investors on AI investment opportunities. Citi’s AI “basket” provides a shortlist of apparent AI beneficiaries, while Bank of America’s “AI Risk Index” offers insights into short opportunities. However, different banks offer contrasting suggestions, highlighting the challenges faced by investors.
Google’s parent company Alphabet has become a staple in AI portfolios and investment funds, although there were concerns about falling behind rivals in terms of AI innovation earlier this year. However, expectations shifted after Alphabet’s annual developer conference, where they showcased their revamped search engine and their plan to monetize AI-powered products with advertisements.
Investors are racing to stay on trend as AI has the potential to disrupt established business models. The impact of AI is debatable, but its real-use cases are already financially impacting major companies.
When comparing the AI revolution to the late ’90s and early ’00s internet bubble, it is crucial to note that dominant players today may not be dominant in the future. The presumption that the largest companies during the peak of the internet bubble would maintain their dominance in the long term was proven wrong.
One example is Cisco, which briefly became the world’s most valuable company based on its role in providing infrastructure to internet companies. While its net income has grown significantly since then, its shares are still below the peak of the tech bubble. On the other hand, companies like Amazon and Apple have experienced substantial growth during this period.
AI presents an opportunity for active strategies in stock picking after a decade of passive fund dominance. However, successful stock picking in the AI era requires expertise and knowledge.
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