According to FactSet, there were 110 S&P500 companies that cited the term ‘AI’ during their earnings calls for the first quarter of 2023. During the second quarter, this number exceeded 166 (more than one-third)[1].
AI has undeniably dominated discussions this year — from client meetings to industry conferences. The burning question on everyone's mind is whether this is the dawn of a new era.
I recently attended the JP Morgan Investment Summit. I asked Karen Ward, the Chief Market Strategist for EMEA, to elaborate on AI implications for the broader market outlook. Karen expressed scepticism, drawing parallels with the 2000 dot-com crisis. While acknowledging AI's potential to mitigate inflation and labour shortages on a global scale, she cautioned against overestimating its long-term impact on the macroeconomic outlook. Contrary to Karen's stance, Fiona Harris, a US Equities specialist, firmly believed in the monumental impact of AI, viewing it as an underestimated force.
Initially, I categorised ChatGPT in the same bracket as ‘TikTok’, finding it unfamiliar and somewhat invasive to my privacy. However, curiosity eventually won me over, and I must confess — I am converted! As English is not my first language, I often ask my husband (and/or my colleagues) to check my grammar. It was a hurdle preventing me from writing blogs like this one. Now, with ChatGPT, I can simply copy and paste my text and request a review for missing particles. Voila! My biggest obstacle has vanished.
Only time will tell whether AI will revolutionise business and the global economy, or if the AI hype will turn into hysteria. Intriguingly, both Fiona and Karen, aligning with my thoughts, agree that it is too early to call the winners. Indeed, the new leaders may still emerge. Karen shared some interesting statistics: in the 2000s, Microsoft was trading at 51x forward P/E.
P/E stands for the price-to-earnings ratio and is one of the most widely used tools by which investors and analysts determine a stock's relative valuation. The P/E ratio helps one determine whether a stock is overvalued or undervalued. For reference, the average P/E ratio for S&P500 stocks is 22, making 40 a high valuation.
Yet, those who invested in Microsoft back then have seen their investment grow by a staggering 990% today (versus 468% for the S&P 500 index). In contrast, Intel, trading at 40 times the P/E ratio, would have yielded a mere 106% return, well underperforming the S&P[2].
Navigating the portfolio in this environment does not have to be complicated. Our team of experienced professionals are here to help. Reach out today and we can work together to prepare a tailored investment strategy that aligns with your goals and ambitions
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