The Great Rotation Trade Sees Investors Abandon AI Giants for Less Obvious Stocks

(Times Of Update) — Signs that stock investors are growing wary of rapid advances by artificial intelligence leaders have shed light on some less obvious beneficiaries of the tech boom.

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Nvidia Corp.’s sevenfold surge since ChatGPT launched in late 2022 has helped fuel a rally led by megacaps around the world. But concerns about the sustainability of those gains, along with geopolitical tensions and shifts in global monetary policy, are now causing the market to broaden as it searches for new drivers.

Investors are selling AI giants to scoop up smaller stocks and defensives that have lagged. The rotation coincides with the AI ​​theme’s expansion into areas beyond chips and software, including the vast amounts of energy and land the technology requires and the industries that could potentially benefit from its implementation.

“We’ve seen some emergence of AI-related deals outside of the technology and communications sectors,” though those two groups still dominate, Gina Martin Adams, chief equity strategist at Times Of Update Intelligence, said in a recent webinar. Utilities saw “a surge in optimism in the second quarter that AI would drive more investment and ultimately translate into stronger growth.”

While technology and communications remain the two best-performing sectors in the MSCI World Index year-to-date (up more than 14% each), they are the two worst-performing sectors quarter-to-date. The two sectors that have gained the most since the end of June are real estate and utilities.

Here is a look at the outlook for various sectors:

Power source

The demand for electricity from the tech sector far outstrips the available supply in many parts of the world. The International Energy Agency estimates that consumption from data centers, AI, and cryptocurrencies could double to more than 1,000 terawatt hours by 2026, roughly equivalent to the electricity consumption of Japan.

This has focused on utilities around the world, from Dominion Energy Inc. and Southern Co. in the United States to YTL Power International Bhd. and Gulf Energy Development PCL in Southeast Asia.

“We believe that the widespread adoption of AI could be a game changer for the power generation sector,” said Evgenia Molotova, senior investment manager at Pictet Asset Management Ltd. “Depending on the pace of adoption, AI could require data centres two to three times larger than those in the current industry by 2030.”

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Equipment

Transformers, the equipment that carries electricity from the generator to the user, are so rare that if you order one today, you’ll be lucky to receive it in 2028, according to Ken Liu, a Chinese utilities analyst at UBS Group AG.

That has boosted shares of major transformer makers this year, including General Electric Co., France’s Schneider Electric SE and Japan’s Hitachi Ltd.

“Energy infrastructure will be a very important topic, even before artificial intelligence,…