“Markets are no longer convinced by AI spending alone. Investors now want evidence of cash flow and profitability. This is driving rotation into attractively priced, dividend-generating sectors that can also enhance diversification.”
- Technology stocks’ H2 performance underscores a clear market demand for greater visibility on capital expenditure.
- In this environment, companies that consistently return cash to shareholders are likely to stay in demand.
- While AI should deliver a productivity boost in the long term to the economy, markets will increasingly distinguish the winners from the losers in the sector.
Confidence in the artificial intelligence theme has weakened in recent weeks, with the MSCI World Technology Index giving back all of the previous month’s gains. This was likely driven by a combination of mixed corporate earnings and renewed concerns about AI-related capital expenditure. We think markets have now moved beyond the phase in which the mere mention of an AI roll-out could excite investors. Markets are now increasingly demanding clarity on cash generation from these sizeable AI investments. By contrast, the MSCI World High Dividend Yield Index gained 8% in the second half of the year as markets sought steadier ground, typically found in sectors such as consumer staples, healthcare and utilities — the traditional home of dividend-paying companies — which held up well as the broader market came under pressure. This suggests diversification* opportunities through more attractively valued sectors with strong, stable businesses.
* Diversification does not guarantee a profit or protect against a loss.
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