Tech stocks look set to potentially continue AI-led hot streak

30 January 2024 (5 min read)

Key points

Technology stocks and the Nasdaq index’s superior 2023 return compared to broader equity indices reflects the exponential growth rate of the tech sector’s earnings
Generative AI is forecast to significantly bolster productivity and add billions to the global economy
Technological advancement across sectors will offer investors considerable opportunities to benefit from superior company earnings growth as companies use AI technology

Nasdaq Composite - Total Return Index

Source: Bloomberg; AXA IM

Generative AI, thrust into popular culture via applications like Open AI’s conversational AI engine ChatGPT, can create and produce text, images, video, and numerous other types of content.

Generative AI can use and manipulative huge data sets to generate outputs which are beyond the capability of humans. As such its potential to disrupt an abundance of industries is huge. It will also underpin new applications across sectors as diverse as autos, healthcare and finance.

Following last year’s success, investors will be closely watching the magnificent seven, all of which are reporting earnings over the coming weeks; investors will be hoping the considerable investment such firms have made in developing their AI offering will ultimately transform into long-term gains.

Nasdaq and S&P 500 Total Return Trend

Source: Bloomberg, AXA IM

The long game changer

Hopes are certainly high for technology’s – and AI’s – long-term potential; McKinsey & Company believes generative AI could add trillions in value to the worldwide economy as it automates activities that presently take up much of workers’ time.⁴

Unsurprisingly, the topic was ubiquitous at the World Economic Forum’s annual meeting in Davos in January. Speaking at the event, European Commission President Ursula von der Leyen declared: “AI can boost productivity at unprecedented speed. First movers will be rewarded, and the global race is already on, without any question.”⁵

Certainly, much of the current rhetoric around AI - and its applications - suggests the momentum is just getting started. History shows that previous technology revolutions, from industrial to the information technology wave, delivered significant productivity boosts. And higher productivity should mean better economic growth and living standards, which in turn should boost returns across a wide range of industries.

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