JPMorgan Wealth Management says investors have mostly been caught in the US earnings growth story, and that they are missing a big shift in the global economy.
The News
In a new video update, investment strategist AJ Odin says the world is in the midst of fragmentation, particularly in global oil supply and the semiconductor supply chains.
According to Odin, the conflict in the Middle East highlighted the fragility of oil and semiconductor supply chains.
“So the big change is that markets have been reminded that the global economy depends on these narrow corridors, especially when it comes to energy and semiconductors. When those are at risk, markets or investors tend to reprice quite quickly.
The Strait of Hormuz, what matters there is that one-fifth of the world’s petroleum consumption passes through that narrow choke point. The other side of the equation is when we think about semiconductors. Taiwan’s semiconductor industry produces or processes about 90% of the world’s advanced chips. Essentially, it has a potentially adverse impact on inflation and on growth if those flows are disrupted.”
Odin notes that JPMorgan holds a constructive view that globalization will not disappear as countries and large companies build relationships with trusted partners, building out redundancies to alleviate the risks in the energy transition and overall supply-chain risks. According to Odin, investments to build these redundancies will ultimately reward investors looking in the right places.
“These dislocations actually create opportunities for investors to lean in. We’re seeing pullbacks where the market is really pricing in worst-case scenarios. There are opportunities to lean into markets and actually benefit from the investment in infrastructure and defense and supply chains overall.”
What It Means for Investors
JPMorgan appears to be saying that AI picks-and-shovels plays along with defense will not only be powered by the massive AI CapEx cycle but also by government spending and regulatory support. And institutional investors appear to be in a solid position to capture the trend.
In Q1, billionaire Paul Tudor Jones slashed its stakes in hyperscalers such as Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL) and rotated the capital into AI beneficiaries like Micron (MU), Broadcom (AVGO) and Sandisk (SNDK).
Also, last quarter, Gavin Baker’s Atreides Management opened a new position in Vistra Corp (VST), a nuclear and power generation company benefiting from AI data center electricity demand. Meanwhile, Brad Gerstner’s Altimeter initiated fresh stakes in AI chip architecture and licensing company ARM Holdings (ARM) and in Axon Enterprise (AXON), an AI-powered firm focused on public safety.
The big funds appear to have made the investments with the understanding that the companies will be the primary beneficiaries of the sustained hyperscaler spending in AI. But if JPMorgan is correct that governments will also participate in the buildout, it won’t be far-fetched to say that the AI-related trades could enter a supercycle.
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