Key takeaways:
- Technology decisions are becoming geopolitical decisions as AI, semiconductors, data and critical infrastructure increasingly intersect with national security, reshaping technology partnerships and supply chains.
- Sovereignty is creating new areas of structural demand, directing capital towards domestic AI capabilities, regionalised supply chains, power, networking, cybersecurity and other enabling infrastructure.
- Greater fragmentation favours active stock selection as political, regulatory and technological forces increase dispersion among companies. Understanding geopolitical risks and their impact on businesses is becoming imperative.
Recently, I attended JHI investment dinners in the Middle East that brought together senior investment decision-makers across the region. The insightful discussions centred around how sovereignty has become an increasingly important investment consideration, in a world where technology infrastructure, data, artificial intelligence (AI), cloud services, capital and security relationships are increasingly intertwined.
For most of the past three decades, technology decisions have been commercial decisions: companies would buy the most appropriate system, at the best price, with the domicile of the supplier a secondary detail. That decision is now more complicated with geopolitical factors overriding economic considerations. Access to distinct technologies, supply resilience, regulatory exposure and geopolitical alignment all need to be assessed and factored in.
Geopolitics is rewriting the investment playbook
The era of technology globalisation is not disappearing, it is evolving. Governments and companies are placing higher value on resilience, security and control of critical infrastructure. Technology capital spending decisions are shifting from who owns the best technology, to who can build, secure and commercialise it in the new geopolitical landscape.
Any AI ‘winner’ is likely to dominate geopolitics. The two largest economies, the US and China, are deeply interdependent; however, strategic competition is affecting key areas in tech development – ranging from AI and semiconductor equipment to advanced manufacturing and cloud infrastructure. The AI race is also conditional on energy. Pulitzer prize-winning author Daniel Yergin highlighted that big tech and AI developers are not just focused on tech innovation – they are also vying to secure reliable baseload power for data centres. In this regard, the US, China and the Middle East have a structural headstart versus other nations.
The nexus of energy and AI is recalibrating the global energy industry and a big factor in an ongoing rethink of energy transition vs. energy addition.
Daniel Yergin, Vice Chairman of S&P Global, Pulitzer Prize winning author of The Prize: The Epic Quest for Oil, Money, and Power, & The New Map: Energy, Climate, and the Clash of Nations.
The semiconductor industry is the posterchild for geopolitics and its challenges. Advanced chip production is geographically concentrated. Advanced memory production across South Korea, Japan, and Taiwan represent a concentrated “ring of fire” for supply chain disruption, while Taiwan controls 90% of advanced semiconductor production, mainly through TSMC.3 Correspondingly, supply-contract conversations with tech hardware companies have shifted from “beat this price” to “show me the resilience of your regional supply chain map”, underscoring the prioritisation of resilience over price.
AI and the push for tech sovereignty
AI is now an arms race. There is cut-throat competition between countries and regions to control and/or secure access to the technologies underpinning AI. This includes not only the frontier models, but also AI hardware – advanced GPUs, CPUs to support workloads and AI processing, memory, servers, storage, networking equipment, along with data centre power and cooling systems.
Restrictions on China’s access to leading-edge semiconductors by the US and other countries reinforce the strategic vulnerabilities embedded in supply chains. As a result, China is pivoting from AI utility and mass diffusion to frontier capabilities. It is also supporting AI in the Global South via infrastructure partnerships. Chinese open-weight models dominate AI utilisation, enabling Chinese near-frontier AI to spread globally at far lower cost.1
Supply chains are fragmenting into regional silos (Asia for Asia, Europe for Europe, North America for North America). Across the Gulf States, more than US$250 billion2 has been earmarked for AI, data centres and digital ecosystems. The Middle East benefits from cheap energy, abundant land, and fungible compute workloads. With US frontier labs unable to customise models to suit Middle Eastern needs, there are attractive regional investment opportunities.
Meanwhile, Europe is ‘trapped’ using US chips paired with Chinese open-weight models (which account for more than half of EU token usage). Targeted regulatory moves such as banning Chinese-made power inverters from renewable grid infrastructure highlight the growing focus on security vulnerabilities over pure price efficiency.
What does this all mean for investments in the tech sector?
Given the massive circa US$5-6 trillion data centre capex cycle, compute is now akin to a variable commodity. With the return of the cost of capital, higher interest rates are leading to higher debt servicing costs, meaning these projects cost more to execute. Consequently, higher hurdle rates (minimum rate of return) raises the risk that capex underperformance may trigger rotations from equity to fixed income investments.
A more fragmented technology landscape typically drives greater return dispersion between companies, industries and regions. Fundamental research across those boundaries can help investors assess where geopolitical risks are appropriately reflected in valuations, where they may be exaggerated, and where the market may be overlooking important exposures.
Against this backdrop we believe active investing has the potential to deliver better risk-adjusted returns. We aim to identify opportunities across the whole AI value chain – power, grid equipment, cooling, networking, the application and services layer, cybersecurity and the applications and services capable of turning AI investment into useful products. In tandem, a focus on profits, cash flows and rational valuations is requisite to invest in this exciting, fast evolving, yet volatile sector.
In an increasingly fragmented world, as governments, corporates and consumers place greater value on resilience, security, and control over critical infrastructure, we think those companies providing flexible, sovereignty-enabling solutions are better positioned for success over the next decade.
IMPORTANT INFORMATION
References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
There is no guarantee that past trends will continue, or forecasts will be realised.
1 World Economic Forum.com; Open-weight AI: The difference between renting and owning tech sovereignty; 4 September 2026.
2 World Economic Forum.com; Unlocking Value: AI for Resilient Growth in MENA; 14 October 2026.
3 US International Trade Administration; Taiwan Country Commercial Guide.
Capital expenditure (capex): Money a business spends on major, long-term assets such as property and equipment (tangible assets) or technology, software, trademarks, patents etc (intangible assets) to facilitate new projects or investments that support business growth and expansion.
CPU: The central processing unit is the control centre that runs the machine’s operating system and apps by interpreting, processing and executing instructions from hardware and software programmes. GPU: A graphics processing unit performs complex mathematical and geometric calculations that are necessary for graphics rendering and are also used in gaming, content creation and machine learning.
Cash flow: Movement of money into and out of a company over a certain period of time. If the company’s inflows of cash exceed its outflows, its net cash flow is positive and may indicate a company is in good financial health.
Dispersion: How much the returns of each variable (eg. stocks in a benchmark) differ from the average return of the benchmark.
Rational valuations: Valuations that appear reasonable and justifiable based on a company’s fundamentals and future prospects, rather than prices driven mainly by excessive optimism or market hype.
Return of the cost of capital: Following the Global Financial Crisis and through COVID, a period of near-zero interest rates and high liquidity meant that businesses and governments could borrow at historically low interest rates. Rate hikes have now made capital more expensive, impacting borrowing decisions, higher expectations for businesses to generate sustainable returns.
Token: AI tokens are the fundamental building blocks of input and output that Large Language Models (LLMs) use. They are the smallest units of data used by a LLM to process and generate text/output that is useful. AI developers and cloud computing companies can monetise AI tokens by charging users or developers based on usage volume and compute power.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
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