Equity outlook: AI carries the torch

Last weekend we returned from client and team meetings in China. Seeing the rapid developments in the country inspired the thought that we are only limited by our own imagination. The fastest production car on earth is now Chinese and it’s electric, the BYD Yangwang U9 Extreme. It registered 496 km/h on a German racetrack, surpassing Bugatti Chiron’s record. Also this week, the Huajiang Canyon Bridge in Guizhou province opened. At 625 meters above water level, it is the world’s highest bridge and a remarkable piece of engineering.

China is making equally rapid progress in AI and cloud computing. Alibaba just announced a USD 53 billion investment in AI infrastructure over the next three years. Combined with the investments from Baidu, Bytedance and Tencent alone more than USD 100 billion will be spent on AI, fueling investor optimism about growth potential and global expansion of the services, rivaling the US hyperscalers.¹ Our China team picked a handful of stocks to gain exposure to this theme and these have contributed to alpha generation in 2025 so far. Wim-Hein Pals shares his views in the EM outlook section.

In the United States, investments into AI are largely carrying the economic torch. Without them, the US economy would have been close to, or in, a recession this year. JP Morgan calculated that since the launch of ChatGPT in November 2022, AI-related companies account for 80% of S&P 500’s earnings growth and 90% of capex growth. With expected earnings growth of about 4% in Q4 for the other part of the market, an economy at two speeds creates great opportunities for stock selection. Audrey Kaplan describes our latest views in the DM section.

We enter the fourth quarter with a certain imagination about continued market strength, although a Shiller P/E of over 40 makes for tense optimism. As always, when the facts change, we possibly change our mind. In today’s world, that may only be a tweet away.

Footnote

¹These are not buy, sell, or hold recommendations. Holdings are subject to change and shown for illustrative purposes only to demonstrate the strategy as of the stated date. Future inclusion of these securities in the strategy is not guaranteed, nor can their future performance be predicted.