The threat posed by artificial intelligence to software-based businesses should prompt investors to shift their focus from tech companies to 'real world' enterprises.
This was stated by the global head of equity and chief investment officer in America at UBS's wealth management division, Bloomberg reports.
According to Ulrike Hoffmann-Burchardi, UBS Wealth (the division of the Swiss bank that specializes in managing the wealth of affluent clients) is beginning to transform portfolios by shifting from a 'bits to atoms' strategy.
This involves purchasing shares of equipment manufacturers, power generators, and resource extraction companies – that is, those who create the physical infrastructure necessary for the functioning of the modern economy.
Over the past three years, technology companies have been market favorites due to the boom surrounding AI. Hoffmann-Burchardi noted that certain segments of the tech sector are vulnerable to changes – primarily software companies, as well as service businesses such as legal and financial firms that depend on software.
While she expects AI to significantly impact many industries, a strong macroeconomic backdrop and easing monetary policy may continue to support stock market growth.
"The macroeconomic situation is very favorable; however, the part related to AI is becoming more complex. The last few years have looked like a tide lifting all boats. But this year, AI will increasingly determine the winners and losers. The entire digital economy may be redefined by AI, and this poses a risk to broad sectors of the stock market," the UBS Wealth leader is quoted as saying.
Hoffmann-Burchardi noted that intangible businesses and long-term investments, such as private equity, in a world dominated by AI will require a higher risk premium. At the same time, companies with tangible assets may prove to be more resilient.
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