When it comes to tech investing, generative AI has investors excited. However, Pictet Asset Management feels that it is just one facet of the tech sector’s transformation. The asset manager informs that despite generative AI’s practical uses, it faces various challenges like accuracy and commercial viability.
“In our view, generative AI is a significant development that can play a key part in the tech revolution,” writes Anjali Bastianpillai, Senior Client Portfolio Manager at Pictet AM.
“However, it is worth remembering that the technology is only one subset of deep learning, which in turn is a subset of machine learning, and which itself is only one of the many aspects driving the digitalisation of our world,” she adds.
According to her, the potential in tech investing is far more extensive and concrete than what many might assume. Bastianpillai also suggests that a digitally driven world founded upon AI and automation may hold the solution to the pressing issue of declining productivity.
Subsequently, the asset manager points out that tech stocks have rallied in 2023, meaning valuations are less attractive than before. As per Bastianpillai, corporate earnings revisions are expected to drive returns, emphasising the importance of active management. Furthermore, she contends that the tech sector’s relatively low leverage and positive net cash position are advantageous amid rising interest rates.
Overall, Pictet believes that four key areas in the digital universe offer compelling prospects. They are public cloud platforms, e-commerce, application software, and enabling technologies like semiconductors.
Building on this, the asset manager suggests that ChatGPT and the technology behind generative AI is just the latest innovation underpinning the long-term potential of the digital universe.
“…we firmly believe that a broad-based portfolio and a focus on competitive moats is the best route for generating attractive returns (from tech investing) over the long term,” concludes Bastianpillai.
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