Firstly, the rise of AI (Artificial Intelligence) boosted themes like Semiconductors and Cloud Computing, driving the big US tech stocks and major indices.
And the numbers have backed up the hype; the most well-known AI-exposed company, Nvidia, has more than doubled quarterly revenue guidance since the beginning of the year. This was driven by an incredible pick-up in usage of generative AI applications like ChatGPT, the launch of multiple AI-driven services by tech companies and overall investments in the space.
The number of visits to ChatGPT’s website rose from just 1 million in December 2022 to over 1.4 billion by the middle of 2023, showcasing how much people are using the new generative AI service for all kinds of use cases from simple tasks like writing letters to complex projects like coding.
Whether this pace of adoption is sustainable remains to be seen, but trends have been strong so far. The functionality of AI services is expanding and improving fast, bringing both opportunities and risks in the long term.
Secondly, the ageing theme has had a significant impact on world markets.
Ageing populations have been one of the factors fuelling worker shortages in the West, keeping many developed economies at close to full employment as workers near retirement age who temporarily stopped working during Covid didn’t re-enter the workforce after the pandemic subsided.
This strong labour market has contributed to inflation rising and remaining at elevated levels. As a result, monetary policy has remained tight, negatively affecting certain market segments such as real estate, utilities or M&A activity.
A rapidly ageing China has struggled to recover during its Covid re-opening, with the country seeing the first population decline in 2022 after almost 60 years of population growth. Despite the headwinds from ageing, we have also seen some major health-related innovations – successful trials of a weight loss drug propelled Danish drugmaker Novo Nordisk to become Europe’s biggest company by market capitalisation during 2023, surpassing luxury goods company LVMH. Themes like Future Health or Robotics and Automation benefit from global ageing trends.
At Quintet, we invest in a range of long-term themes to gain exposure to the technologies and business models of the future.
Finally, the transition to sustainable energy continues even if the path is not always smooth in the short term.
Themes like electric vehicles (EVs) benefitted from policy support, improving production and interest from consumers. The share of EVs in overall vehicle sales is rising. Given the potential impact on the local economy, Europe has even opened a probe into imports of Chinese EVs into Europe.
The clean energy theme was more volatile as high interest rates impacted the financing of many projects. The long-term outlook for energy transition themes remains strong, as energy security risks remain elevated amid high oil prices and situations like the ongoing conflict in Ukraine. The energy transition theme also underscores some geopolitical challenges for the global economy, given the current reliance on fossil fuels and the risk of price shocks like in 2022. As per Bloomberg New Energy Finance, the transition to Net Zero by 2050 could require annual investments in cleantech to rise 2-3x in the coming decade compared to around $2.0 trillion annually in recent years.
This investment increase is a crucial factor supporting planet themes like Clean Energy and Electric vehicles in the long term, even if there are short-term speed bumps due to interest rates or higher input costs. The track record of the cleantech industry in reducing costs has been exemplary in the last decade. Although there has been some upward pressure recently due to commodity prices, interest rates and supply chain issues, we believe cost reductions in cleantech can continue in the long term.