After Microsoft, Alphabet, Meta and Amazon reported increases in capital expenditure, with most of the incremental spending on artificial related-related infrastructure, wealth managers share their insights into investment opportunities in big tech and AI.
The cloud platforms of Microsoft, Alphabet, and Amazon reported an acceleration in revenue growth in the first quarter of 2024, with the combined growth now approaching 24 per cent year-over-year. This compares with below 20 per cent in the third quarter of 2023 and earlier, which UBS Wealth Management believes shows that AI-related monetization is a tailwind for software earnings’ growth.
Other wealth managers also noted how these Big Techs are investing heavily into AI.
Apple also reported a slight increase in quarterly dividends. This increased cash distribution supports UBS’s positive view on big tech overall, which is driven by their solid free cash flow generation, the Swiss bank said in a note.
Apple’s results added to a strong first quarter for big tech companies, which raised capital expenditures and reported accelerating cloud revenue growth. UBS thinks this past earnings season has an encouraging read through to the broader tech sector, and it maintains its positive view on the AI theme.
“With an estimated 20 per cent growth in earnings this year, and a 16 per cent increase in 2025, we continue to believe the risk-reward for global tech is attractive with current valuations,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said.
“We maintain our preference for semiconductors, software, and big tech to ride the AI wave, but also see opportunities in Asian beneficiaries for those with excessive exposure. Investors can also utilize structured strategies to position for further upside while protecting against drawdowns,” Haefele added.
UBS emphasized how Amazon plans to spend $9 billion over the next four years to expand its cloud computing infrastructure in Singapore. According to a statement, the Amazon Web Services’ (AWS) investment will help it meet growing customer demand for cloud services and accelerate the adoption of artificial intelligence. Last week, the company reported a first quarter operating margin of 38 per cent for AWS, adding that the cloud platform was on track to bring in more than $100 billion in sales over the course of a year for the first time due to corporate technology modernization projects and demand for AI services.
The Semiconductor Industry Association’s (SIA) World Semiconductor Trade Statistics (WTSC) database also reported that the three-month rolling average of global semiconductor industry sales rose 15.2 per cent year-over-year in March. According to the SIA, the results keep the global semiconductor market on track to grow to double digits in 2024.
Other voices
Robert Alster, chief investment officer at Close Brothers Asset Management also highlighted how Amazon achieved a multi-billion dollar run-rate in the first quarter of 2024. “This suggests that Amazon is not lagging its competitors in AI. This is backed by a $14 billion capex spend in the first quarter which will be the lowest quarter of capex spend – this means Amazon and AWS will continue on a growth path over the rest of the year,” he added.
“First quarter sales and profits beat consensus and management believes there are still further efficiencies to be extracted in the mature e-commerce business, but it is AI expenditure that will determine Amazon’s future from here,” Alster said.
Ian Mortimer and Matthew Page at London-based Guinness Global Investors also see investment opportunities in innovation and artificial intelligence – areas which are playing an increasingly important role in the sector. The managers have identified nine innovation themes in the Guinness Global Innovators Fund, notably advanced healthcare, AI and big data, clean energy and sustainability, cloud computing, internet, mobile tech, next gen consumer, payments and fintech, robotics and automation. They focus on companies exposed to these themes. See more commentary here.
