AI technology

After a difficult previous year marked by market volatility and economic difficulties, the US stock market has experienced a strong recovery since the start of the new year. This recovery was driven by several key factors: the resilience of the technology sector, growth in the semiconductor industry driven by the development of AI, the expected pause in Fed rate hikes and the assessment of future rate cuts in late 2023 amid lower inflation.    The technology sector, which includes leading companies in innovation and digital transformation, has played a critical role in the market's resurgence. Industry giants such as Apple, Amazon, Microsoft and Alphabet have achieved significant stock price gains as they continue to innovate and provide products and services that meet changing consumer demands. The development of artificial intelligence technology has been a major catalyst for growth in the technology sector.   The semiconductor sector has also been one of the growth drivers of the markets. Companies such as Nvidia and AMD are experiencing strong demand for their advanced chipsets, which are vital for AI applications. The widespread adoption of AI technology across sectors has made semiconductor companies key drivers of innovation, contributing to their stock prices and overall market recovery.   The market was also supported by the expected decision of the Fed to pause its rate hikes. This pause in monetary policy tightening has helped to maintain the thesis of an end to the tightening cycle as early as H2 2023. 

In a world where economic indicators and market movements can shift with the blink of an eye, staying updated on the latest offerings and promotions within the financial sector is crucial. Today, we delve into one such noteworthy development that has emerged on the horizon, enticing individuals to explore a blend of banking and insurance services. As markets ebb and flow, being vigilant about trends and opportunities can lead to financial benefits. Let's explore this exciting promotion that brings together the worlds of banking and insurance to offer a unique proposition for consumers.     By Michael Hewson (Chief Market Analyst at CMC Markets UK) US non-farm payrolls (Aug) – 01/09 – the July jobs report saw another modest slowdown in jobs growth, as well as providing downward revisions to previous months. 187k jobs were added, just slightly above March's revised 165k, although the unemployment rate fell to 3.5%, from 3.6%. While the official BLS numbers have been showing signs of slowing the ADP report has looked much more resilient, adding 324k in July on top of the 455k in June. This resilience is also coming against a backdrop of sticky wages, which in the private sector are over double headline CPI, while on the BLS measure average hourly earnings remained steady at 4.4%. This week's August payrolls are set to see paint another picture of a resilient but slowing jobs market with expectations of 160k jobs added, with unemployment remaining steady at 3.5%. It's also worth keeping an eye on vacancy rates and the job opening numbers which fell to just below 9.6m in June. These have consistently remained well above the pre-Covid levels of 7.5m and have remained so since the start of 2021. This perhaps explain why the US central bank is keen not to rule out further rate hikes, lest inflation starts to become more embedded.                          US Core PCE Deflator (Jul) – 31/08 – while the odds continue to favour a Fed pause when the central bank meets in September, markets are still concerned that we might still see another rate hike later in the year. The stickiness of core inflation does appear to be causing some concern that we might see US rates go higher with a notable movement in longer term rates, which are now causing the US yield curve to steepen further. The June Core PCE Deflator numbers did see a sharp fall from 4.6% in May to 4.1% in June, while the deflator fell to 3% from 3.8%. This week's July inflation numbers could prompt further concern about sticky inflation if we get sizeable ticks higher in the monthly as well as annual headline numbers. When we got the CPI numbers earlier in August, we saw evidence that prices might struggle to move much lower, after headline CPI edged higher to 3.2%. We can expect to see a similar move in this week's numbers with a move to 3.3% in the deflator and to 4.3% in the core deflator.       US Q2 GDP – 30/08 – the second iteration of US Q2 GDP is expected to underline the resilience of the US economy in the second quarter with a modest improvement to 2.5% from 2.4%, despite a slowdown in personal consumption from 4.2% in Q1 to 1.6%. More importantly the core PCE price index saw quarterly prices slow from 4.9% in Q1 to 3.8%. The resilience in the Q2 numbers was driven by a rebuilding of inventory levels which declined in Q1. Private domestic investment also rose 5.7%, while an increase in defence spending saw a rise of 2.5%.             UK Mortgage Approvals/ Consumer Credit (Jul) – 30/08 – while we have started to see evidence of a pickup in mortgage approvals after June approvals rose to 54.7k, this resilience may well be down to a rush to lock in fixed rates before they go even higher. Net consumer credit was also resilient in June, jumping to £1.7bn and a 5 year high, raising concerns that consumers were going further into debt to fund lifestyles more suited to a low interest rate environment. While unemployment remains close to historically low levels this shouldn't be too much of a concern, however if it starts to edge higher, we could start to see slowdown in both, as previous interest rate increases start to bite in earnest.            EU flash CPI (Aug) – 31/08 – due to increasing concerns over deflationary pressures, recent thinking on further ECB rate hikes has been shifting to a possible pause when the central bank next meets in September. Since the start of the year the ECB has doubled rates to 4%, however anxiety is growing given the performance of the German economy which is on the cusp of three consecutive negative quarters. On the PPI measure the economy is in deflation, while manufacturing activity has fallen off a cliff. Despite this headline CPI is still at 5.3%, while core prices are higher at 5.5%, just below their record highs of 5.7%. This week's August CPI may well not be the best guide for further weakness in price trends given that Europe tends to vacation during August, however concerns are increasing that the ECB is going too fast and a pause might be a useful exercise.     Best Buy Q2 24 – 29/08 – we generally hear a lot about the strength of otherwise of the US consumer through the prism of Target or Walmart, electronics retailer Best Buy also offers a useful insight into the US consumer's psyche, and since its May Q1 numbers the shares have performed reasonably well. In May the retailer posted Q1 earnings of $1.15c a share, modestly beating forecasts even as revenues fell slightly short at $9.47bn. Despite the revenue miss the retailer reiterated its full year forecast of revenues of $43.8bn and $45.2bn. For Q2 revenues are expected to come in at $9.52bn, with same store sales expected to see a decline of -6.35%, as consumers rein in spending on bigger ticket items like domestic appliances and consumer electronics. The company has been cutting headcount, laying off hundreds in April as it looks to maintain and improve its margins. Profits are expected to come in at $1.08c a share.        HP Q3 23 – 29/08 – when HP reported its Q2 numbers the shares saw some modest selling, however the declines didn't last long, with the shares briefly pushing up to 11-month highs in July. When the company reported in Q1, they projected revenues of $13.03bn, well below the levels of the same period in 2022. Yesterday's numbers saw a 22% decline to $12.91bn with a drop in PC sales accounting for the bulk of the drop, declining 29% to $8.18bn. Profits, on the other hand did beat forecasts, at $0.80c a share, while adjusted operating margins also came in ahead of target. HP went on to narrow its full year EPS profit forecast by 10c either side, to between $3.30c and $3.50c a share. For Q3 revenues are expected to fall to $13.36bn, with PC revenue expected to slip back to $8.79bn. Profits are expected to fall 20% to $0.84c a share.         Salesforce Q2 24 – 30/08 – Salesforce shares have been on a slow road to recovery after hitting their lowest levels since March 2020, back in December last year, with the shares coming close to retracing 60% of the decline from the record highs of 2021. When the company reported back in June, the shares initially slipped back after full year guidance was left unchanged. When the company reported in Q4, the outlook for Q1 revenues was estimated at $8.16bn to $8.18bn, which was comfortably achieved with $8.25bn, while profits also beat, coming in at $1.69c a share. For Q2 the company raised its revenue outlook to $8.51bn to $8.53bn, however they decided to keep full year revenue guidance unchanged at a minimum of $34.5bn. This was a decent increase from 2023's $31.35bn, but was greeted rather underwhelmingly, however got an additional lift in July when the company said it was raising prices. Profits are expected to come in at $1.90c a share. Since June, market consensus on full year revenues has shifted higher to $34.66bn. Under normal circumstances this should prompt a similar upgrade from senior management.   Broadcom Q3 23 – 31/08 – just prior to publishing its Q2 numbers Broadcom shares hit record highs after announcing a multibillion-dollar deal with Apple for 5G radio frequency components for the iPhone. The shares have continued to make progress since that announcement on expectations that it will be able to benefit on the move towards AI. Q2 revenues rose almost 8% to $8.73bn, while profits came in at $10.32c a share, both of which were in line with expectations. For Q3 the company expects to see revenues of $8.85bn, while market consensus on profits is expected to match the numbers for Q2, helping to lift the shares higher on the day. It still has to complete the deal with VMWare which is currently facing regulatory scrutiny, and which has now been approved by the UK's CMA.

The introduction of ChatGPT and Nvidia's recent share price jump have put stocks related to artificial intelligence (AI) on investors' radars. Earnings growth expectations are high and this article aims to highlight ways to get exposure to AI in a diversified way.   On 25 May, Nvidia shares closed 24% higher. In percentage terms, it was not the biggest rise by a listed company ever, but in terms of market capitalisation it was. The company became $185bn more valuable in a single trading day. An extraordinarily strong outlook for revenue and earnings, well above analysts' consensus estimates, fuelled the rally. The company's leading position as a supplier of GPU chips has put the company in a position to reap maximum gains from increased investments into AI research and deployment. Nvidia’s outlook confirmed that the AI hype was real and it put AI on the map like never before. What is artificial intelligence? Artificial intelligence (AI) is the simulation or approximation of human intelligence by machines. It is the ability of a system to correctly interpret external data, learn from this data, and use these lessons to achieve specific goals or tasks. AI basically has two forms: weak and strong. Weak AI is concerned with research and the development of applications in limited subfields in which behaviours are possible that appear intelligent but are not truly intelligent. Examples include chess computers, chatbots and search engines. Strong AI deals with research related to creating a computer or software that can reason and solve problems as well as possibly having self-awareness. ChatGPT and generative AI tools are potentially closer to the strong form of AI. In a nutshell, business processes can be automated and optimised using AI. For example, complex petrochemical companies like Dow Chemical or DuPont de Nemours can use AI to determine when and where maintenance is needed. We also see AI in the form of high-performance surgical robots and it can support doctors in making the right diagnoses, thereby improving treatment plans. However, there are many more applications. For instance, AI can help detect fraud, but it can also recommend music (Spotify) and movies (Netflix) based on your previous interests and ratings. In short, AI is everywhere in our daily lives and it is likely that AI will be an integral part of almost every sector in the future. This offers opportunities for investors looking to capitalise on the growing demand for AI technologies and applications. Investing in a new technology The sector is expected to see high growth. In the report 'Global artificial intelligence market size 2021-2030', research firm Statista has calculated that the market will grow from $100bn in 2021 to $1.8trn in 2030, equivalent to a 38% annualised growth rate. One should note that this is just one forecast, projecting growth rates for a new technology that we have never observed before. One way to get exposure to AI is through the 'Magnificent Seven' - Amazon, Alphabet (Google), Apple, Meta, Microsoft, Nvidia, and Tesla. These companies all play a key role in the development and application of AI, but it is worth remembering that the key driver of their earnings is still not AI. Investors should also recognise that investing in individual stocks is generally riskier than diversified investing through a mutual fund or ETF. There are two UCITS ETFs tracking AI-related stocks that are well-diversified and have acceptable costs: the L&G Artificial Intelligence UCITS ETF and the WisdomTree Artificial Intelligence UCITS ETF. Both ETFs score, at minimum, three out of five globes on Morningstar’s Sustainability Rating. However, neither of these ETFs have an overall score yet from Morningstar. The AI ETF from L&G currently holds 68 well-known and lesser-known positions such as Alphabet (Google), Global Unichip, Nvidia and Shopify, while WisdomTree's ETF holds 62 stocks. These include Blackberry, C3.AI, Nvidia and Upstart. Running costs are 0.49% (L&G) and 0.40% (WisdomTree) per year, respectively. Both ETFs are traded on several exchanges with euro and dollar denominations available. The primary objective of L&G's ETF is to track the performance of the ROBO Global® Artificial Intelligence Index TR, while the WisdomTree ETF tracks the Nasdaq CTA Artificial Intelligence NTR Index. So far, both ETFs have done what they are supposed to do: closely tracking the benchmark, excluding costs. The dividend yield is between 0.25% and 0.75% annually for both ETFs and is automatically reinvested in both cases, as both ETFs are accumulating. The underlying dividend yield across these stocks is naturally low because this sector has very high equity valuations and many of these companies are reinvesting their cash flows into growth. The key risks to consider when investing in AI-related stocks are naturally the market risk itself, but also the elevated equity valuation for this sector, which could be triggered should interest rates rise further. Growth expectations are very high for these companies, which means that the upcoming Q2 earnings season poses a key test of those expectations. . Most of the AI-related companies are US-based and thus there is a considerable USD risk in this theme. Additional information on the risks, historical returns, costs and currency spreads of L&G's ETF can be found here; for WisdomTree's ETF, use this link. The AI theme has undoubtedly been the biggest surprise this year in global equity markets, and in this article we have highlighted different ways to get exposure to this new technology, which is likely seeing some of the most optimistic expectations for the future since the early days of the internet.