AI investors are becoming more selective

By Javier de Berenguer, Fund Selector at MAPFRE Asset Management.

Investors are becoming increasingly selective about where they put their money in the artificial intelligence sector. That is according to Javier de Berenguer, a fund selector at Mapfre Asset Management (AM).

I believe AI investment is becoming less about promising narratives and more about companies’ ability to deliver on them. Investors aren’t going to invest in just any AI company. They’ll focus on those that can show they are delivering results or successfully monetising the applications they launch.

Enthusiasm for AI isn’t going away, because this is very likely one of the greatest economic and social revolutions, we have ever seen or will ever see.

Telefónica, however, is a different story, having seen its shares fall in recent weeks.

Overall, I do not consider the stock attractive because the company is highly capital-intensive and is being hurt by rising financing costs. It also operates in a highly competitive sector, while investors are particularly concerned about its ability to generate organic growth. The company doesn’t have investors’ confidence, and that’s reflected in its share price.

Looking beyond individual stocks, I feel that a potential peace agreement involving Iran could give markets a boost. So, I favour overweighting equities, which have been held back to some extent by geopolitical risk. Increasing exposure to longer-term debt could also be a sensible strategy.

Another likely effect of a Middle East peace plan would be a drop in oil prices. At Mapfre, we think prices would fall quickly as some of the geopolitical risk premium faded. However, we wouldn’t expect them to plunge, given the longer-term challenges, including permanent damage to infrastructure. We believe supply will remain relatively tight.

Meanwhile, European production has risen for three consecutive months. The figure is clearly positive and consistent with what we’re seeing in the European economy, although much of the improvement is due to cyclical rather than structural factors.