①Strategists at Bank of America have proposed a "perfect" AI investment strategy, which involves investing in non-AI tech stocks that benefit from the AI boom to hedge against AI-driven volatility.
②This strategy recommends focusing on areas such as electrification, infrastructure and grid expansion, metals, and defense, which may benefit from AI-related trading but maintain an adjacency to the tech industry itself.
As U.S. tech giants' capital expenditures on AI become increasingly staggering, the concern of whether the 'AI boom might evolve into a growing AI bubble' has become a worry for many AI investors.
In response, Bank of America strategists have proposed a "perfect" investment strategy.
The "Perfect" AI Investment Strategy
Recently, Bank of America strategists outlined a "perfect hedge" strategy for AI trading – "investing in artificial intelligence without directly investing in AI itself."
Simply put, investors should focus on non-AI tech stocks that benefit from the AI boom to hedge against "volatility driven by artificial intelligence."
Bank of America analysts stated that they do not believe the recent two-year bull market in U.S. stocks represents an artificial intelligence bubble. They argued that AI presents significant opportunities for investors willing to continue investing in AI technology. The bank estimates that AI-related investment spending will triple by the end of this decade, reaching approximately $1.2 trillion.
However, the bank also acknowledged the risks faced by investors, especially considering the high valuations in the technology sector—$NASDAQ 100 Index (.NDX.US)$with a price-to-earnings ratio reaching approximately 37 times, while$S&P 500 Index (.SPX.US)$the price-to-earnings ratio is about 22 times.
Nevertheless, "we cannot ignore valuation issues and timing," wrote the Bank of America strategists. "We would screen for high-quality companies with growth potential and a 'low AI beta coefficient' for our 'buy' ratings."
They added that attention could be paid to sectors that may benefit from AI-related transactions but maintain an adjacent relationship with the tech industry itself.
Bank of America has identified several key areas of interest:
1. Electrification
Analysts noted that although the development of artificial intelligence technology is expected to significantly increase energy demand, the main drivers of growth in this sector are more attributable to other factors, such as new regulations.
They wrote, "We expect overall electricity and grid demand to remain very robust, driven by growing electricity needs from electric vehicles, building electrification, and a global focus on energy independence."
2. Infrastructure and Grid Expansion
Bank of America stated in the report, "Electrification of transportation, heating, and industry will require significant investment in energy storage, grids, and low-carbon power generation. As electricity demand continues to grow, orders for infrastructure such as grid equipment and cables will further increase."
Strategists stated that they believe grid operators, transmission equipment providers, energy storage solutions, and renewable energy developers will be the 'core beneficiaries' within this category.
3. Metals
The increased demand for energy is also driving the use of certain metals associated with electrification. Bank of America highlighted metals such as copper, silver, lithium, aluminum, and nickel.
"The growth in metal demand is no longer cyclical, as economies are restructuring their energy infrastructures."
The construction of power generation capacity and the laying of transmission/distribution lines are driving overall demand for copper and aluminum — a structural trend that our commodity strategy expects to continue until at least the end of 2030, despite peaks and troughs in spending.
4. Defense
Bank of America stated that governments around the world are increasing their defense budgets and intend to invest in areas such as computing power, artificial intelligence algorithms, robotics, energy, and new materials, all of which are fields related to the artificial intelligence industry.
“Security resilience is a structural trend that cannot be ignored. Defense budgets are continuously expanding.” The strategists wrote that the trend of increased defense budgets across countries implies trillions of dollars in long-term investments and robust demand for next-generation technologies.
Editor/Melody