This edition starts with a skeptic's guide to AI investment and continues with some surprising drivers of domestic equity returns. The diversion, not as bizarre as Monday's, is a guitarist-based list, and we will also look ahead to major data reports. Many theme-based investors made a lot of money in 2024 betting on AI while others - myself included - became concerned that related stocks were overhyped and that the strategy, like many previous investing fads, would end up in tears.
Sell-side research added to the hype - we expect nothing less - and also provided tools for assessing how real the trend has become in driving actual profit margins and not just Nvidia’s stock price. At base, analyst Edward Stanley’s report was a summary of a survey of executives at more than 3,700 companies who answered questions about AI adoption. This part of the report was only marginally interesting to me. Corporate management talking about “leveraging to increase shareholder value” but it may or may not indicate actual execution of a concrete strategy, in this case the adoption of AI. U.S. financials are likely to provide the first clues as to whether AI can translate into higher profits. Financial executives viewed AI with increasing importance over the past six months and the sector has the most “low hanging opportunities” where AI can increase loan growth, improve customer service, make sales efforts more productive and raise revenue, Mr. Stanley notes that customer support is an expensive priority for financials and that “call handling times can be reduced by 40 per cent by using basic GenAI applications for language, sentiment and routing.” For exchanges, Nasdaq is using AI tools to streamline the process of uncovering market manipulation