One week / one topic: Electric storm

What happened?

In 2011, vaunted venture capitalist Marc Andreessen penned a prophetic essay titled “Why software is eating the world”.

Is it now (finally) AI’s turn to take over?

Based on recent developments, markets seem to indeed think that many competitive moats that used to look pretty established are actually not that safe anymore…

After all, how many business models are actually defensible vs an army of intelligent and indefatigable bots?

It is perhaps then not a coincidence that posts like ‘Something big is happening’ have recently gone viral, further stoking fears that nothing and no one is safe from the inevitable takeover of the machines.

In that context, as markets challenge the terminal value of many equity sectors, there are indeed relevant immediate and medium-term implications.

For example, the rotation away from US Tech names continues to favour emerging markets stocks and sectors that make physical things, as the latter two are considered to be more disruption-proof.

Also, Alphabet, Amazon, Meta, and Microsoft spending $500b on AI investments in 2026 – you read that correctly – doesn’t exactly help assuage growing investor fears about the ultimate return on investment here…

At the same time, inflation expectations remain stuck in a higher-than-before range as they respond to sticky goods inflation despite lingering, powerful and long-established secular forces like tech-induced disinflation and demographic decline.

Once more – despite no shortage of momentous developments in many other corners – the ‘AI theme’ is assuming macroeconomic relevance. In other words, you can’t really ignore it – as tempting as that may be.

However, we will likely only find out what this all means over a fairly long period of time, as the global economy will not get completely disrupted overnight.

That said, all bets are off if we somehow do get AGI (Artificial general intelligence) that can control hardware…

What can we do in the meantime, then?

Our observations

• Fundamentals: Given the potential uncertainty, it seems reasonable that markets would favor more predictable sectors and countries. Is it already in the price, however? Or is it going to take significantly longer for investor beliefs to shift and embrace a new crop of perceived ‘winners’?

• Price action: After the last few years, we are all so desensitized… However, equity rotation has been very large and ongoing for more than one year now. So, take notice.

• Investor beliefs: Maybe AI-enabled businesses will indeed disrupt many industries, or maybe all this fear is unjustified and we will adapt to technological disruption once again. Meanwhile, prices can move by a lot either way…

So what?

Many of the recent reversals in fortunes are affecting long-time winners like US Tech stocks vs everything else, Growth vs Value, Developed vs Emerging Markets and so on.

There is a palpable temptation to extrapolate these recent developments into something along the lines of ‘If X has underperformed for such a long time, there is potential for multi-year catch-up moves here’.

If only things were so simple, however…

While I do think that structural change is afoot and that we inhabit an increasingly (and radically) different place vs just a few years ago, there is still an immense number of things that we just don’t can’t know.

Just focusing on the ‘AI disruption’ theme in evidence as of late, what can we say about who the winners and losers will be?

And what about new sectors and jobs that don’t exist yet, but might well one day become very big contributors to economic growth and (hopefully) job creation?

Precisely because we don’t know, then, trying to merely (!) stack the odds in one’s favor sounds like a sensible and humble approach to portfolio construction.

With that in mind, we still strive to combine diversification across regions and sectors with a preference for more attractively valued segments like Japanese and Emerging Markets equities.

Mood music: Jimi Hendrix – All Along the Watchtower

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