How AI is disrupting financial markets

Artificial intelligence (AI) has taken the financial markets by storm, with stocks related to this technology experiencing an extraordinary surge in share prices. Michele Santangelo, Portfolio Manager at Independent Securities, believes that AI is not just a passing fad but a sustainable trend that will continue to grow and evolve. He highlights the importance of identifying the companies that will emerge as winners in this rapidly expanding field. Santangelo points out that the excitement surrounding AI stocks spiked when ChatGBT launched a few months ago, igniting investor interest in the potential of AI. However, he emphasizes that AI has been an investment theme for a while and is already being implemented across various industries successfully. This indicates that AI is here to stay and will play a significant role in shaping the future. When asked about the current winners in the AI sector, Santangelo mentions tech giants like Nvidia and Microsoft, which have strategically positioned themselves to benefit from AI growth. While these companies are expected to continue their upward trajectory, he also anticipates the rise of new winners across industries such as robotics, healthcare, and finance. Santangelo highlights the importance of companies leveraging AI to drive growth and profitability. In terms of local investment opportunities, Santangelo notes that South African companies are incorporating AI in sectors like banking, telecommunications, and mining. While direct exposure to pure AI companies may be limited in the local market, there are still opportunities for investors to capitalize on the benefits of AI adoption in various industries. One critical aspect that Santangelo highlights is the need to distinguish between sustainable trends and passing fads in the market. He draws parallels with past hyped technologies like virtual reality and 3D printing, which failed to deliver on their initial promises. By closely monitoring companies using AI effectively and delivering value to consumers, investors can identify potential winners and avoid investing in companies that may struggle with AI integration. When assessing AI investments, Santangelo stresses the importance of evaluating top-line growth and ensuring that companies fulfill their growth promises. Companies with strong growth prospects, like Nvidia, may justify their premium valuations based on their performance. Santangelo advises investors to scrutinize companies' use of AI and monitor their actual growth to make informed investment decisions. In conclusion, Santangelo believes that current AI leaders like Google and Meta still offer value to investors, with attractive valuations compared to historical averages. While some tech stocks may have run up in the short term, there are pockets of value within the market. By being selective and cautious, investors can navigate the AI landscape and capitalize on the opportunities presented by this transformative technology.