Arguing the AI boom represents a multi-year capital supercycle rather than a bubble, Nuveen has asserted that investors are still not fully positioned to capture the return opportunities across the capital stack.
Nuveen’s global macro strategist Laura Cooper said all signs point to a broadening of returns in the AI trade beyond the US megacap tech stocks.
Regarding investors however, she said what has become a “multi-year capital supercycle” is still not being fully reflected in positioning across the breadth of the trade.
In a recently published paper, Cooper argued for allocating across the full capital stack of the AI supercycle, from equity investors at the top through to credit investors financing AI-related capex.
“The opportunity set increasingly spans credit, private markets, infrastructure and real assets financing AI deployment at scale,” she said.
“Diversification is possible across asset classes. Investors can align growth, income and inflation protection objectives with opportunities across the AI value chain.”
Breaking down the US asset manager’s views on cross-asset positioning, Cooper started with public equities.
Dominant US technology firms have driven recent gains through AI-related spending and productivity investments that have supported stronger profit trajectories, with the recent US earnings season largely defined by AI.
But despite elevated multiples having raised concerns about concentration risk, Cooper said Nuveen believes they are often underpinned by fundamental earnings growth potential, while also stating that the equity opportunity set is still broadening.
“As markets digest the implications of AI and capex shifts, we see productivity gains becoming embedded across sectors: from US industrial automation to logistics platforms, healthcare technology and beyond.”
She added that the diffusion of AI-enabled productivity is “beginning to unlock second-order effects” in areas that have previously been underappreciated by traditional valuation frameworks.
“At the sector level, hardware is underpinned by strong demand driven by data movement, storage and analytics. And as AI expands the types of threat and their complexity, incremental spending in cybersecurity is likely to remain resilient in this relatively unique part of the market.
“Elsewhere, AI-adjacent sectors are positioned to benefit from the power shortfall, from industrials to energy.”
Additionally, she highlighted international opportunities, including European and Japanese industrials, which Nuveen believes are currently more attractively valued than their US peers.
However, Cooper struck a note of caution on the potential for further upside, pointing to heightened sensitivity to multiple compression, earnings disappointments and concentration risk.
The software sell-off is an example of how long-running market themes can shift quickly as AI-driven disruption emerges, reinforcing the importance of selectivity and diversification, according to Cooper.
The jury is still out over the scale of AI-driven productivity gains however, with Ninety One’s head of sustainable equity Deirdre Cooper telling Investor Daily earlier this month there has been “no notable change” in US GDP-linked productivity.
Beyond equities, the paper highlighted how power generation, transmission, grid upgrades and data centre infrastructure are driving long-term financing needs, creating opportunities across debt and credit markets with the bonus of defensive characteristics.
“Long-dated project finance and infrastructure debt offer exposure to AI-driven investment with the defensive characteristics of lower volatility, strong asset backing and predictable cash-flow visibility.
“Select high yield industrial and technology issuers tied to automation, networking and data infrastructure could further broaden the opportunity, benefitting from stronger free cash flow and more disciplined balance sheets than in prior cycles,” Cooper argued.
In private markets, she noted that direct lending is increasingly becoming a core financing channel for the AI ecosystem.
According to the paper, some senior loans to mid-market data centre operators and related providers are currently offering yields in the 8.5 to 12 per cent range. Meanwhile, collateralised loan obligations can offer income resilience in a higher-for-longer rate environment.
“Crucially, private credit allows investors to tailor exposure to the AI supply chain, translating thematic conviction into contracted, cash flow-driven returns through underwriting discipline, covenant protections and asset-backed structures,” she wrote.
Finally, she highlighted debt and equity opportunities in real assets and infrastructure tied to data centres, fibre networks, telecom towers and related build-outs.
It has been noted that the long-dated contractual revenues and high barriers to entry make data centre investment attractive for large institutional investors such as super funds, which have been invested in the sector for some time.
