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Tech stocks look set to potentially continue AI-led hot streak

By Chris Iggo
5 minute read

After dominating equity markets in 2023, technology stocks are showing no signs of letting up in the new year with the S&P 500 having already soared to a fresh high on the back of the sector’s momentum.

Despite last year’s shaky macroeconomic backdrop, markets defied expectations – global equities finished the year 24 per cent ahead while the technology-heavy Nasdaq achieved a stellar 45 per cent.

For its part, the S&P 500 delivered a 26 per cent total return – and the so-called “magnificent seven” – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – accounted for 62 per cent of this.

These superior total returns reflected technology’s exponential growth rate, related earnings and of course, the excitement around the rise of generative artificial intelligence (AI).


Generative AI, thrust into popular culture via applications like Open AI’s conversational AI engine ChatGPT, can create and produce text, images, video, and numerous other types of content.

Generative AI can use and manipulate huge data sets to generate outputs which are beyond the capability of humans. As such, its potential to disrupt an abundance of industries is huge. It will also underpin new applications across sectors as diverse as autos, healthcare, and finance.

Following last year’s success, investors will be closely watching the magnificent seven, all of which are reporting earnings over the coming weeks; investors will be hoping the considerable investment such firms have made in developing their AI offering will ultimately transform into long-term gains.

The long game changer

Hopes are certainly high for technology’s – and AI’s – long-term potential; McKinsey & Company believes generative AI could add trillions in value to the worldwide economy as it automates activities that presently take up much of workers’ time.

Unsurprisingly, the topic was ubiquitous at the World Economic Forum’s annual meeting in Davos in January 2024. Speaking at the event, European Commission President Ursula von der Leyen declared: “AI can boost productivity at unprecedented speed. First movers will be rewarded, and the global race is already on, without any question.”

Certainly, much of the current rhetoric around AI – and its applications – suggests the momentum is just getting started. History shows that previous technology revolutions, from industrial to the information technology wave, delivered significant productivity boosts. And higher productivity should mean better economic growth and living standards, which in turn should boost returns across a wide range of industries.

Fresh opportunities

The AI evolution we have witnessed to date has certainly been remarkable. While the focus has been mainly on infrastructure – cloud computing, computing capacity, and semiconductors – a plethora of sectors stand to benefit. Banking and finance, supply chains, media, marketing, life sciences, robotics and medicine could be among the biggest winners.

In addition, as AI likely weaves its way through multiple industries, numerous sectors across the tech spectrum are gearing up for potentially significant growth.

The metaverse, which allows individuals to interact with each other in shared online spaces, is expected to generate up to $5 trillion in value by 2030 – roughly the size of Japan’s economy. Already vital to the metaverse’s evolution, generative AI is making it even easier to transform ideas into highly realistic content and experiences.

In addition, as concerns over online security ratchet up, the global cyber security market should enjoy ever-increasing growth with some reports forecasting it could reach $425 billion by 2030 – up from $154 billion in 2022.

Industrial policy driving growth

Advances in AI are also driving improvements in semiconductor design and production, as chips need to become increasingly complex – and semiconductors are big business, Globally, the semiconductor market witnessed sales of $600 billion in 2021, but it is expected to grow to a $1 trillion industry by 2030.

Government policy is also helping to spearhead growth. The US CHIPS Act is injecting $52 billion into technology innovation, focused on semiconductor design and domestic semiconductor production.

Elsewhere, the US Inflation Reduction Act (IRA) introduced in 2022 should help drive a new wave of growth and innovation by helping the private sector – and investors – decarbonise energy, transportation, agriculture and other emission-intensive sectors. The IRA has earmarked billions of dollars in new spending and tax breaks to increase clean energy investment, cut healthcare costs, and raise tax revenues.

The next wave

Following 2023’s rally, US equities are certainly expensive and it would be unwise to expect the Nasdaq to match last year’s run over 2024.

But in our view, AI will offer considerable opportunities to benefit from superior company earnings growth. Naturally, some firms will shed market share if they fall behind the technological curve. In addition, how AI is regulated and used is of utmost importance.

But the potential is vast; forecasters often underestimate the pace of the technological development and adoption. We expect this theme to be a major influence on markets and investors, over the years and decades to come. Exposure to the US technology sector has been a winning strategy for the last decade and we expect this to continue for the foreseeable future.

Chris Iggo, chair of the AXA IM Investment Institute and CIO of AXA IM Core