This past week of trading activity brought with it several new developments that can and have stoked uncertainty in a number of sectors within the stock market. As last week’s sequential trading sessions showed a marked narrowing of market leadership, in my view, there is good cause to rotate heavily into artificial intelligence (AI) trade. It became crystal clear that there is a generational wealth-building opportunity in AI currently underway at the expense of just about every other market sector.
Sometimes it just pays to spend 100% of one’s due diligence on a secular wave that can add multiples to one’s net worth. The artificial intelligence revolution is as big as the rollout of the Internet, and with the right stocks, investors can amass a fortune from the largest wave of IT spending of all time. Fortunes are made on Wall Street by being heavily weighted in the stocks of companies that will see massive inflows of spending on their products and services.
The IDC Worldwide Artificial Intelligence Guide shows that by the end of this year, companies will have spent 26.9% more on AI tools than the same time last year. And this rate of annual growth is expected to continue through to 2026. “Companies that are slow to adopt AI will be left behind — large and small. AI is best used in these companies to augment human abilities, automate repetitive tasks, provide personalized recommendations and make data-driven decisions with speed and accuracy,” said Mike Glennon, senior market research analyst with IDC’s Customer Insights & Analysis team.
AI spending will double to more than $300 billion by 2026. The United States will be the largest market for AI systems, with more than 50% of all AI-centric spend. Western Europe will account for about 20% of global AI spend but will have the fastest growth rates for the period at a compound annual growth rate (CAGR) of 30% over the five-year period. News flash! Halfway through 2024, the capital spending on AI is already approaching 2026 forecasts.
Spending is accelerating in a wave of AI FOMO (fear of missing out), where if your company doesn’t have in place a state-of-the-art AI platform, you may as well order the last words to be etched on your corporate tombstone. It is forecast that somewhere between $1-2 trillion will be invested in AI in all its forms by 2030 and that, in all its applications, AI is predicted to contribute some $15.7 trillion to the global economy by 2030.
The numbers are staggering, and this spending wave is in its own stealth bull market. It doesn’t care about the U.S. elections, geopolitical strife in the Middle East, climate change, political upheaval in Europe or anything else. This is a new and brazen battleground for survival of the fittest among the mightiest companies in the world to gain the necessary advantage to maintain and gain market share.
Investors should never lose sight of what makes the economic world go around; it is pure capitalism at its finest. It’s what drives progress to make the world incredibly more efficient so that a greater percentage of humanity may have a better life. AI is like air conditioning being introduced for the first time to millions of struggling companies around the world trying to find a way to generate profits for the very first time.
You either make your company way better because of AI, or you get passed by and wonder. There are three types of people in the world — those that make things happen, those that watch things happen and those that ask, “What happened?”
This is no time for investors to sit idle with their “diversified” portfolios invested in emerging markets (that are getting hammered); Eurotrash stocks pigeonholed by a monumental shift in political sentiment that will ultimately result in parliamentary chaos within a number of key countries; China’s weak economic recovery masked in opaque shadow-banking turmoil that will ultimately lead to widespread financial demise; overregulated industries and most other market sectors that are seeing negative money flow because smart money is all in — one million percent — on the AI revolution.
Big-cap AI-driven tech is the here and now crux for portfolios, and there are roughly 20 stocks that are all one needs to be highly overweighted in for year ahead. Between the blowout earning reports, higher earnings guidance, the substantial stock buybacks announced and stock split for a few of the key leadership stocks, big-cap AI tech-centric stocks should be the primary focus of investors’ capital commitments while this wave is the size of the Waimea Bay pipeline.
I state that because, as with most “aha” moments during any technological disruptive mega-wave, those stocks that stand to benefit the most get priced to over-perfection before the spending wave even matures. There is over $6 trillion dollars in dry powder sitting in Schwab, Fidelity and other high-yielding money markets that has yet to commit to this raging bull market in AI. It will come, and when it does, valuations will go parabolic, and it will be a perfect time to sell into that euphoric strength, count your chips and blessings that you were in on this move and take your best friend out to dinner. It’s that big, and quite frankly, the AI trade seems still woefully under-owned.
