JPMorgan says investors should prepare portfolios for both the upside and the disruption that artificial intelligence could unleash across global markets.
In the bank’s Alternative Realities podcast, JPMorgan Asset Management global market strategist Stephanie Aliaga says the rapid improvement of AI tools is forcing investors to rethink how they position portfolios.
According to Aliaga, investors have been too focused on pricing in the risks of AI while dismissing potential rewards.
“I think investors should be prepared for the downside, but also the upside. There was this viral piece that weighed the headwinds around something big happening. And I think really the reason why this resonated so much is it helped make clear for a large subset of people, the upside risks of these tools are just getting so good so quickly. We need to get a handle on what this looks like. And so there’s a real opportunity cost for investors to just kind of sit out of this race.”
Amid the excitement and uncertainty, Aliaga says the key investment strategy is portfolio diversification, starting with trimming positions in the crowded mega-cap tech trade.
“AI technologies may be transformative, which can have really destructive implications for leadership across industries and sectors… You obviously have your US equity sleeve, and chances are that sleeve has grown pretty meaningfully after the last three years of AI-fueled blockbuster gains. We want to think about having some diversification there. Reducing your concentration risk, leaning into other parts of the markets that are benefiting from all this AI CapEx.”
She also mentions plays outside of the US stock market.
“Beyond that, look internationally. The AI value chain, and particularly even the hardware ecosystem, is increasingly global and interconnected. There are opportunities there. In alternatives, in private markets, a phenomenal way to help diversify portfolios, lower correlations to the S&P 500, depending on what asset class you’re looking at, but also different nuanced ways to gain access and exposure to these themes.”
But within the S&P 500, Aliaga names three sectors that could benefit from the massive AI CapEx boom.
“We’ve talked about the opportunities in some of these smaller, growing AI-native companies, and some of the bigger ones, too, but also infrastructure, real estate and transport.
We go back to the basics here, and it’s the boring takeaway, but diversification we think is really, really key and being mindful of how you’re exposing yourself to the upside opportunity to AI just as much as the downside.”
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