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Launched in 2007, our tech strategy invests globally in equities from the technology, media and communications sectors. The tech sector in particular is constantly experiencing trends and bubbles, with the AI revolution currently on everyone's lips. Who are the winners of the AI future?
Proper "active" selection is more important than ever with tech trends and hype. From time to time, we specifically target the fund against certain market trends. For example, we recently underweighted the high-flyer Apple by more than 18%. At more than 30x, Apple has an expensive P/E ratio with virtually no growth. We also recently reduced Google's Alphabet by almost four percentage points. Alphabet is a key long-term position for us, but we are somewhat concerned that generative AI could hurt its near-monopolistic position in Internet search.
What makes the Technology, Media and Telecommunications sectors so exciting in our view is that they are characterized by stable earnings and structural growth drivers. The early beginnings of cloud computing and artificial intelligence provide a strong foundation for future growth. Sectors combined are expected to grow faster than the overall economy at a compound annual growth rate (CAGR) of 5.2 percent between the years 2021 and 2025.
AI in the starting blocks
Artificial intelligence is currently the hot topic in the entire tech industry, even though it is not a new topic. Google, for example, announced many years ago that it would use artificial intelligence in the future. The fact that Microsoft has opened the chat GPT and let people like us play around with some big language models has put this topic on the agenda. And it also seems that things are moving faster now than maybe a year or two ago. We see great revenue opportunities for this sector despite the current hype around the topic. We expect companies in the AI space to be truly profitable and not trading at crazy valuations. In the second quarter of the current year, we expect revenue to increase by seven billion U.S. dollars out of a total market of eleven billion U.S. dollars.
In our view, we are only at the beginning of the AI revolution and it will make us all and the economy in general more productive. The big winners are likely to be not only companies that drive development around artificial intelligence, but the entire technology sector will benefit. Those companies that have a unique data set and the necessary capital to implement their own projects will be particularly successful.
Another interesting topic and focus for us is the gaming industry, where the metaverse has already become reality. For example, the fund holds titles such as Activision, Electronic Arts and Ubisoft Square. The gaming industry is interesting in that the younger generation will still be interested in gaming as they get older. The advent of data glasses for virtual reality (VR) and augmented reality (AR) gaming is also expected to fuel this trend. The new generation of AR tools may lead to an explosion of new games. This is precisely why gaming could grow faster than the economy.
Meta top, Metaverse flop
When it comes to virtual reality, the Facebook company Meta sees itself as a pioneer with Metaverse. Last year, we took a close look at this topic and tested all kinds of products. But the attempt to hold meetings in Metaverse failed. Metaverse still needs massive improvements in technology, then virtual and real worlds could merge in the future.
We are positive about Meta's communications platforms. And have recently overweighted the share. In June, Meta's share performance benefited from higher utilization of Reels ads and positive trends in the online advertising market. It is Meta's widespread use of social media platforms Facebook, Instagram and WhatsApp that makes it attractive to us as an investment - as does its investment in AI - at least related to live chat features on social media. Even though there is a lot of uncertainty around AI alongside the hype, it remains exciting! Whether the list of big tech companies will look the same in 10 years as it does today remains to be seen.
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