It has been hard to miss the news about tech and AI. They are driving big returns in stock markets.
So, what does this mean for you? Why are these firms doing so well? What are the risks of investing in these companies? And how are the Octopus funds taking advantage of their meteoric rise?
What is Big Tech?
“Big Tech” means the world’s biggest technology firms. They build software, devices, and digital media.
US markets focus on seven top companies. They call them the “Magnificent 7”:
- Microsoft
- Apple
- Nvidia
- Alphabet
- Amazon
- Meta
- Tesla
Global Market Sizes by Country vs “Magnificent 7”
Source (Lipper): MSCI All Countries World Index
These seven firms make up about 35% of the US market index (the S&P 500). That means seven firms carry more weight than hundreds of other big companies combined. To put their size into context, the whole UK stock market accounts for just 3% of global markets. Yet these seven firms make up roughly 21%.
The AI boom and its risks
Demand for Artificial Intelligence (AI) and the expected future efficiencies that can be gained from adopting AI are driving these growth in valuations. These companies are viewed as the mandatory tollbooths for the AI era. Nvidia produces the specialized microchips (GPUs) necessary to train AI, while Microsoft, Alphabet, and Amazon control the massive computing networks required to run them.
This fast rise brings fear of an “AI bubble”. The seven tech firms plan to spend $700 billion on AI infrastructure. Most of this is going into data hubs and tech. Some investors worry this spending is far higher than real AI profits and that they may not see a return on this capital investment.
Over the last three years, these firms gained 109%. But over the last year, trends shifted. The group grew by 22%, while the broader US market grew by 26%. Performance was mixed too. Nvidia and Alphabet grew fast, while Microsoft and Meta lagged behind.
While AI offers transformative business potential, it also carries implementation risks that investors must consider. Questions remain regarding technology governance and the regulatory guardrails for Big Tech. Investors must engage with these companies and policymakers to ensure AI adoption is managed responsibly.
How Octopus Money Direct invests
Our Growth Funds spread your money across global stocks and bonds. We do not put too much in one asset type or single country, this helps spread risk. If one market drops, your whole investment is not hit as hard.
Each of our Growth Funds holds some US tech stocks. So, your investment has benefited from their rise.
We do however take the view that there is risk in the super high valuations of these companies in comparison to the amount of revenue they are generating. We have therefore chosen to invest a little less in the US and prefer instead to invest in Emerging Markets where we believe growth is likely to be more sustained.
Want to learn more? Check out how our Growth Funds invest on our fund pages.
