Since the last newsletter, technology stocks continued to underperform as investors began to question the premium valuations that these companies command since the start of the artificial intelligence (“AI”) narrative. There is no doubt that AI will result in long-term productivity gains as more companies begin to announce standalone AI products. Additionally, continued improvements in AI hardware will likely accelerate development going forward.

As we assess the current investment landscape, we anticipate the road forward for AI-related opportunities to be less smooth than the past year as investors increasingly scrutinise the potential for these AI investments and applications to deliver solid returns.

We believe that the first to see widespread AI adoption would be in areas that provide support in pattern recognition and personal assistance. These applications, while not entirely new, have progressed significantly over the past year. To illustrate, Salesforce has recently announced Agentforce, a client servicing bot that is easily customisable for different industry applications. Compared to older chatbots, early adopters of Agentforce have seen a 40% improvement in customer query resolution. In healthcare, doctors are also increasingly using AI to assist with effective diagnosis and drug development. We are well positioned to benefit from increasing AI adoption over the long-term on this front.

Where we are looking to gain additional exposure is in AI-related hardware. We are tracking several data center equipment and power management companies. However, these sectors in general are trading at a high premium and are already well-invested. We believe we should take a more considered approach prior to initiating a significant position given the high valuations.

The AI landscape is undoubtedly changing very quickly, and we will be flexible on our positions depending on the developments that unfold going forward.