Allianz Technology says AI demand is “durable” and not a bubble as trust rallies 45% before July’s correction

Allianz Technology (ATT) delivered a “very strong” 44.6% underlying return in the first half of the year with the £2.2bn investment trust smashing its Dow Jones World Technology index benchmark’s 25.8% – by Gavin Lumsden

Interim results showed shareholders’ total return was 42.7% from positions linked to the artificial intelligence (AI) infrastructure boom as the share price discount widened slightly to 9% in response to £97m of share buybacks.

However, a 12% fall last month following the half-year run-up underlined what chair Tim Scholefield called “significant” risk around the theme of AI-driven hardware, semiconductors, datacentres, software and services companies.

“Pitfalls for the unwary investors include the possibility that companies misallocate capital or become excessively leveraged in their dash to win the AI race,” he said.

“AI continues to generate excitement, but excitement alone is not an investment case,” Scholefield added, welcoming the focus of fund managers Mike Seidenberg, Danny Su and Erik Swords on companies “that solve difficult problems, have strong competitive positions and can translate structural demand into earnings growth over the long term”.

The San Francisco-based Voya investment team said the tech market had continued to broaden with “mega cap” stocks between $250bn and $1trn rallying 90% in the first half, while “large cap” stocks of $30bn to $250bn advanced 44%. By comparison the “super mega cap” “Mag 7” stocks over $1trn that account for 60% of the benchmark gained only 7%.

Their best stocks included overweight positions in US chipmakers Micron Technology and SanDisk. Micron shares have surged 188% this year to value the company at nearly $1trn, while SanDisk has shot up 411% to $180 despite giving up nearly half its gains in July.

The managers’ biggest new additions were Samsung Electronics of South Korea, Applied Materials, the US semi conductor solutions provider and ASML, the Dutch manufacturer of advanced semiconductor lithography equipment. These were funded by the sale of Shopify, the e-commerce platform struggling with intense competition, and Arista Networks whose strong AI-driven growth started to wane.

Countering fears of an AI bubble, Seidenberg, the trust’s lead manager, remained “constructive” on his sector which he said was buoyed by durable AI-driven demand and growing evidence of monetisation. “While valuations have firmed after recent gains, they remain broadly supported by a multi-year growth outlook and improving free cash flow generation among leading platforms.”

He added: “We believe earnings growth ultimately drives stock prices over the long term and, in our view , we are still early in the spending trend supporting this dynamic segment.”

ATT shares eased 0.7% to 665.4p. Over five years they have returned 125%, slightly behind the 133% of the Dow Jones World Technology index.

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