Not letting it go
The AI-PC theme is a rare opportunity akin to the smartphone revolution and is likely bound for long-term growth.
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After what has been a fairly hectic year, I’m will soon be on vacation and using the time to represent Hong Kong and China at the 45th Chess Olympiad in Budapest, Hungary. It has been a long time coming – the last Olympiad I participated in was the one in Batumi, Georgia, in September 2018. Little did I know back then that I would have to wait six years before competing at the Chess Olympiad again! Hindsight can be a great teacher, and it has taught me never to take anything for granted!
In a way, investors must be feeling the same about the AI-revolution. In the lifetime of an investor, such extraordinary themes are not common. It is, therefore, unsurprising that investors have been maximising this investment phenomenon.
One opportunity I’m particularly excited about is the AI-enabled Personal Computer (PC) theme. There are parallels with the “smartphone revolution” in the mid-2000s – the key similarity being that you ‘must’ switch to the smartphone or in this case an AI-PC in order to use functions uniquely enabled by the new technology.
It is not surprising that analysts are projecting a whopping 60% share of AI-PCs across total PC shipments globally in 2027, up from merely 11% in 2023. Such statistics help illustrate the analogy with smartphones versus traditional mobile phones.
The key drivers for AI-PCs include: 1) Productivity and security applications, 2) Enterprise demand through 2024 and 2025 as existing software and hardware reach end-of-life, and 3) a refresh of consumer PCs.
The AI-PC opportunity is linked closely to the “broadening of earnings” theme in equity markets. A more detailed look at earnings revisions data suggests the “technology hardware” and “semiconductor” sub-industry groups having been outperforming other groups by this measure within the “technology” sector index. We continue to hold a strong preference for the US technology sector, and these two sub-industry groups are key components of this positive view.
Despite the markets shake-up in early August, investors may have returned “en masse” to mega-cap US growth stocks, such as “the Magnificent Seven”. However, we believe they have yet to fully embrace the AI-PC opportunity within this broader theme. This likely points to a long-term growth opportunity in this area.
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