CONTRIBUTORS
Jonathan Curtis
Portfolio Manager
Franklin Equity
Key takeaways:
- Investors who focus on capturing artificial intelligence’s (AI’s) investment potential solely through tech companies and infrastructure providers may miss the bigger opportunity.
- The AI productivity revolution is already underway—forward-thinking companies in sectors across the economy are harnessing AI to expand profit margins and drive revenue growth.
- We believe the market continues to significantly misprice generative AI’s potential value creation, particularly outside of the tech sector.
Why AI’s biggest investment opportunity is not in tech
Remember when everyone thought the internet was just for email? Some investors in gen AI might just be making the same mistake.
Wall Street is obsessed with who’s selling AI—semiconductor companies, copilots, chat bots—and with good reason. These companies are creating AI’s infrastructure and building the foundation on which the Intelligence Age will stand. But we think they're missing the real story as we discuss in this paper: AI isn’t just something tech companies sell. It's something every company will use to become more productive, generate new sources of revenue and grow earnings faster.
When personal computers (PCs) arrived in the 1980s, smart investors didn't just bet on IBM, Microsoft and Intel. The real long-term winners were companies that used computers to digitally transform their businesses—banks that automated transactions, retailers that revolutionized inventory management and manufacturers that streamlined operations. We believe the same thing is happening now with the application of AI, but many times faster.
Our conclusion
In 1995, if you bought the PC leaders, you did well as an investor. But if you bought the smartest companies that built competitive advantage by digitizing their business early using the PC? You probably got rich.
We believe today's AI moment is bigger. It’s faster. And it’s hiding in plain sight. The market sees AI as a tech story. Smart investors see it as an everything story. While others bid up the obvious AI plays, we think you can buy future AI winners at yesterday’s prices. The gap between current valuations and AI-powered earnings potential is significant, in our analysis. In five years, people will wonder how anyone missed it.
The only question is: Will you see it before everyone else does?
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks.
Investment strategies which incorporate the identification of thematic investment opportunities, and their performance, may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. Focusing investments in the health care, information technology (IT) and/or technology-related industries carries much greater risks of adverse developments and price movements in such industries than a strategy that invests in a wider variety of industries.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.
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