Over the past three decades, the technology sector has outperformed other sectors. A primary reason for this is its central role in boosting productivity and driving innovation across all industries. The sector's resilience, adaptability and continuous evolution make it a solid choice for long-term investment. The ongoing digital transformation in various sectors, particularly focusing on new applications of artificial intelligence, underlines this position.
At the moment, it's all about generative AI. Investments in generative AI, particularly in companies such as Meta and Salesforce, achieved excellent returns in 2023. The reasons were both in cost control and the emerging opportunities in generative AI. AMD and Adobe also performed well last year. AMD is one of the few manufacturers of AI chips, and Adobe is a pioneer in the implementation of generative AI in its existing products.
By 2024, NVIDIA could be the leader when it comes to investments in data centers. However, the share price is based on the assumption of a smooth implementation, although its near term future is not entirely certain. Demand may not be able to keep pace with initial investment, creating a vacuum for chip manufacturers as overcapacity needs to be reduced. In addition, there could be a shift in market share for hyperscalers in favor of AMD and ASICs developed in-house.
In the video games sector, the industry benefits from a favorable demographic composition: the average gamer is in their mid-30s and therefore significantly younger than consumers within traditional forms of entertainment such as television. Even though the video games industry generates less money per hour, it often produces content that is just as attractive to advertisers as live sport. Market sentiment has been bearish following the coronavirus pandemic, offering potentially undervalued investment opportunities that contradict the prevalent belief that the sector's growth has reached a plateau.
Having access to data is a key factor
Looking ahead, the entire technology sector is likely to emerge as the big winner in the AI race. The key factor is access to data, which is what will help find the real winners. Companies with unique data sets and access to capital will be able to develop their own AI projects. The growth of AI will continue to go hand in hand with the development of machine learning algorithms, data analytics, cloud computing and specialized hardware. The hype is already reflected in share prices: the "Magnificent Seven" have risen by more than 50% compared to the previous year. At the same time, investors are selling companies with no direct connection to generative AI in order to finance the purchase of companies with generative AI, leading to significant market distortions in this sector and opening up interesting investment opportunities. Leading companies such as Nvidia and cloud giants Microsoft (Azure), Amazon (AWS) and Alphabet (GCP) are the main beneficiaries of generative AI. However, long-term success will depend on new products being brought to the market for businesses and consumers, such as Microsoft's Co-Pilot and Meta's new advertising tools.