Why investors shouldn’t take their eyes off AI’s impact in 2025
Global Investment Strategist
In recent months, the conversation around artificial intelligence (AI) seems to have been overshadowed by political discourse and tariff policies, even though AI was the main driver of discussions and market performance in 2024.
Despite quieter public dialogue, AI remains a powerful catalyst for technological advancement and economic growth. As believers in AI's transformative potential, we continue to recognize potential investment opportunities in this technology, alongside hyperscalers and companies at the forefront of the AI revolution.
AI continues to evolve while costs plummet
Our 2025 Mid-Year Outlook, titled "Comfortably Uncomfortable," underscores AI's role as a significant secular trend, even amid distractions like tariff policies. Its rapid evolution this year is particularly evident in large language models (LLMs), which are now capable of delivering PhD-level outputs while their costs have plummeted, facilitating broader adoption.
History shows that technologies with significantly reduced costs often lead to widespread adoption – consider the impact of air travel and personal computers. We continue to believe AI is poised to drive gains in the tech sector globally, with agentic AI expected to lead the next wave of software, enhancing consumer experiences and enterprise productivity.
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Recent earnings point to the impact of AI on the Magnificent Seven
So far, the signs are promising. The latest earnings reports from the first quarter of 2025 highlight some great examples of how AI is making a positive difference for the “Magnificent Seven” (Mag 7) companies:
- Nvidia is experiencing robust growth due to the increasing global demand for AI technology. The company is actively establishing AI development centers, akin to factories, in various countries, underscoring AI's recognition as critical infrastructure, comparable to electricity and the internet.
- Amazon's cloud services are thriving, largely driven by AI demand. The company plans to expand its cloud capabilities later this year to meet this demand.
- Microsoft's cloud platform, Azure, achieved impressive growth, fueled by AI advancements, reinforcing the company's leadership in the AI race.
- Alphabet's strong Q1 results highlighted the success of its AI model Gemini 2.5, driving growth across services like search and cloud.
- Meta is leveraging AI to enhance its advertising tools and is developing new AI applications.
Beyond the Mag 7, Chinese tech leaders Tencent and Alibaba are making significant strides in AI as well. Tencent's Q1 earnings showed robust revenue growth, driven by AI-targeted ad scaling. Despite increased AI spending, Tencent remains confident in its AI integration plans. Alibaba's rapid launch of AI products, including its flagship LLM product, Qwen, exemplifies the company's commitment to AI innovation.
AI is driving tech sector gains across global markets
Companies’ AI spending is through the roof
The common thread among these companies is their substantial investments in AI, recognizing its pivotal role in future growth. The big four AI hyperscalers alone – Amazon, Microsoft, Alphabet and Meta – are expected to spend approximately $596 billion in 2025, which is up 35% from last year. Alibaba, meanwhile, is planning to invest over $52 billion in AI over the next three years.
In sum, AI’s impact has been undeniable. Companies are not retreating from the AI race – if anything, they’re investing more. The ultimate winners of the AI race may not yet exist, but the opportunity set is broadening. AI is evolving from a story of the few to a story of the many.
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Global Investment Strategist
