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Opportunities and risks in AI investing: where markets may be getting it wrong

AI brings huge opportunity, but also real risks. Richard Clode, co-fund manager of The Bankers Investment Trust, explains where investor concerns come from and why today’s AI investment cycle looks very different from past technology booms.

Q: Where are the biggest investment opportunities in AI today?

The starting point is the growing demand for computing power and data storage. As AI systems become more advanced, they need far more processing power and memory to handle complex tasks. This is driving strong demand for computer chips and the equipment used to manufacture them.

Importantly, this surge in demand is happening at a time when the semiconductor industry is already operating at close to full capacity. That combination of strong demand and limited supply supports profits and gives companies the confidence to invest in new factories and equipment, helping to fuel growth across the wider AI supply chain.

“The key question isn’t the size of AI spending. It’s who’s funding it and whether demand is real today.”

 

Q: Does AI affect sectors beyond technology?

Yes, very much so. One clear example is energy. The rapid expansion of data centres is increasing electricity demand in certain regions, creating opportunities for utilities that supply this power.

AI is also likely to improve productivity across many parts of the economy. In more tightly regulated industries, such as banking, established companies may be able to benefit from these efficiency gains while facing less threat from new competitors. That’s why we see AI not as a narrow technology trend, but as a long‑term theme with the potential to influence a wide range of sectors.

Q: Many investors worry about the sheer scale of AI spending. Is that a risk?

The concern is understandable, particularly given comparisons with the dot‑com boom of the early 2000s. The difference today is who is doing the spending. Most of the investment in AI is coming from highly profitable, cash‑generative companies, particularly large US technology groups, which are reinvesting their own profits rather than relying heavily on borrowing.

History shows that major technologies often require large upfront investment before their full potential is realised. With AI, however, the foundations are already in place. Smartphones, cloud computing and high‑speed mobile networks mean new AI tools can be used immediately, rather than waiting years for demand to catch up. As a result, AI data centres are already fully utilised and generating revenues, which gives us confidence that current levels of investment are largely rational and commercially driven.

Q: Is circular financing (where AI companies are funded by firms that also buy their products) a cause for concern?

Some newer AI companies are not yet profitable and rely on external funding. In a few cases, that funding has come from larger technology companies that are also customers or partners. While this can raise concerns, there are important differences from past technology cycles.

Rather than lending money to customers to buy equipment, we are seeing established companies take minority ownership stakes in emerging AI businesses. This approach has clear precedents in previous technology waves and allows larger firms to support innovation without taking on excessive financial risk. While this is something we continue to monitor closely, we believe the current structure of AI investment remains more disciplined than in past bubbles.

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.

 

Before investing in an investment trust referred to in this article, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

 

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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Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • Some of the administrative expenses are taken from capital. This allows more income to be paid but it may also restrict capital growth or even reduce the capital over time.
  • Losses could be incurred if a counterparty became unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
  • Derivatives may be used with the aim of reducing risk or managing the portfolio more efficiently. However, this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • This investment should be held as part of a broader diversified portfolio. Balancing it with investments that have different risk profiles can help reduce the impact of any single investment underperforming.
  • The Company may borrow to invest, which could magnify gains or losses.
  • As the Company may borrow to invest, changes in interest rates could increase or decrease the cost of any borrowings.
  • The Company invests in the shares of other companies. These shares may become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • Your return on investment is directly related to the market price of the Company's shares, which may be higher (trading at a premium) or lower (trading at a discount) than the value of its underlying net asset value assets. This means your returns may differ from the performance of those assets.
  • While active management techniques are typically positive for performance, this approach may also result in periods of underperformance relative to the benchmark and comparable passive and index-tracking funds, particularly during unexpected market shifts.
  • Shares can gain and lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may rise and fall in line with the underlying equity markets.
  • If the companies in which the portfolio is invested persistently reduce their dividend payments, the Company will find it more difficult to maintain or grow its own dividend payments each year.
  • The portfolio invests in currencies other than sterling, meaning fluctuations in exchange rates could affect returns.
  • The Company maintains a portfolio with a bias towards income-generating companies. This may result in the Company significantly underperforming or outperforming the wider market.