The US equity markets since the introduction of artificial intelligence have appreciated significantly. In addition to this excellent performance, another impact has been that the composition of the market indices has changed considerably, Mariolina Esposito writes in her essay on finews.first.
finews.first is a forum for authors to comment on economic and financial topics.
The technology sector accounts for 29 percent of the S&P500 index. To this must be added the Communication Services sector, where Internet companies have replaced traditional companies as the sector's leaders in terms of market capitalization.
Also in the Consumer Discretionary sector are companies whose main business is technological innovation. Finally, the Financials sector includes companies that until recently resided in the technology sector in a strict sense.
«The composition and nature of the technology sector have changed dramatically»
It can be said, therefore, that today technology accounts for over 40 percent of the main US stock index and that the composition and nature of the technology sector have changed dramatically over the last 35 years: software and the internet now account for 45 percent of the market capitalization of the technology sector, compared to 5percent in 1988.
Taking the top 1,500 companies by market capitalization in the US, the technology sector now represents 18 percent of companies and 34 percent of market capitalization. Finally, the composition of the technology sector has changed radically: hardware now accounts for 5 percent of the total number of companies in the technology universe and 2 percent of market capitalization, compared to 32 percent of companies and 66 percent of market capitalization in 1988.
«The performance of AI-related stocks will be positive in a falling rate scenario»
Info Tech, Industrials, Health Care, Automotive, and the Internet for e-commerce are currently in focus. Manufacturing but also service companies that adopt AI-based solutions will be able to improve operational efficiency and optimize business processes.
We are convinced that the performance of AI-related stocks will be positive in a falling rate scenario, for two reasons: on the one hand, companies developing the technology can access financing capital on better financial terms and accelerate their implementation, improving their financial profile and debt structure where present.
On the other hand, investors may be driven to seek higher returns than the bond market and move towards sectors considered to have higher growth, such as those related to AI.
«There are several macro trends underway globally»
The industrial revolution that AI is advancing will affect many industries and many more geographies than the US. There will be developments in Asia and Europe as well. Government policies intended to support technological innovation and digital infrastructure will therefore help create a favourable environment for companies active in the AI sector.
There are already European or Asian companies, for example, operating in the semiconductor sector, which are inevitably affected by American companies - developers in the front row - without whose productive contribution it would not be possible to grow global industrial capacity.
There are several macro trends underway globally, among them we believe that the topic of Cybersecurity will progressively receive great attention for the management and storage of the data that will need to be transferred and stored, precisely when AI-related technology is implemented.
Mariolina Esposito is the Fund Manager of the Eurizon Fund Equity Innovation at Eurizon Asset Management.
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