Investors urged to stick with megatrends despite weakness

Artificial intelligence isn’t the only global growth engine to watch, and the latest sell-off has not stopped experienced investors.

Anthony Keane

@keanemoney

4 min read

August 9, 2024 - 5:00AM

The Australian Business Network

AI and robotics will be key growth areas for investors. Picture: iStock

Business

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Many stocks have been beaten up in the latest bout of market turbulence, but the sectors set to drive investment gains over the next decade should remain on investors’ radars, share specialists say.

Artificial intelligence remains investors’ biggest megatrend, according to analysts and economists, but it’s not the only kid on the block.

Clean energy, commodities, defence and robotics are also key areas to keep across as government and consumer demand for them surges.

“Boldness can fast-track your wealth creation,” said Moomoo market analyst Jessica Amir.

She said recent falls among AI and other tech stocks highlighted how investors should take a long-term view “and be prepared to cop a beating along the way”.

These five megatrends are big ones to watch.

Artificial intelligence

“The number one megatrend of my career, and our generation, is the AI thematic,” Ms Amir said.

“Imagine a reality of George Jetson with his flying car – we don’t know how AI is going to change our lives, because it’s the depths of our imagination.”

Giant AI chipmaker Nvidia is down 30 per cent from its recent peak, and Shaw and Partners senior investment adviser Jed Richards said it and fellow AI chip giant Taiwan Semiconductor could potentially drop further, but remained good investments.

“If you are prepared for a lot of volatility in the next six to 12 months, these stocks will provide you growth over a five-to-ten year period,” he said.

Robotics

Some see robotics as an extension of AI, but complex machines designed to replace human tasks don’t have to be intelligent – just efficient.

BetaShares chief economist David Bassanese said robotics would change the nature of the workforce “as our population ages and we run out of workers”.

“Many industries are going to be transformed by robotics,” he said. “If the pullback is not over, these are good opportunities to get into these areas.”

Investors usually own robotics companies through exchange traded funds such as ROBO and RBTZ. “ETFs give you that broader diversified exposure without having to pick winners in the space,” Mr Bassanese said.

Clean energy

“The clean energy revolution is a megatrend,” Mr Bassanese said.

“We are not quite sure who the winners are going to be – there are lots of different competing technologies.”

Solar, wind, hydrogen and nuclear are sectors that will shape an energy-rich future in which AI, big data and electric vehicles want more and more power.

“You don’t want to put all your eggs in one basket, such as hydrogen,” Mr Bassanese said. “As a thematic you want to be diversified.”

Moomoo’s Ms Amir said “clean energy is clean, no matter where it comes from”.

“One uranium pellet the size of your fingertip is equivalent to one tonne of coal,” she said. “Up until 2040 and beyond there is a supply problem with uranium.”

Mr Richards was not as confident about uranium and other clean energy stocks.

“I don’t invest there,” he said. “It’s nice to have but they haven’t done what the hype expected.”

Commodities

Mr Richards said the commodities megatrend was centred on iron ore and copper, a key component in the electrification of vehicles.

“If you look at China, yes their growth is slowing but it’s still so big – they are still buying everything they can from us in terms of iron ore,” he said.

Moomoo’s analysis says technical analysis suggests copper, silver and aluminium could be due for a rally.

Defence

As geopolitical problems escalate in Europe, the Middle East and Asia-Pacific, demand for defence is only set to escalate.

Ms Amir said it was not just for military assets, but also cybersecurity. “NATO is increasingly doing a good job in getting countries in the alliance to spend 2 per cent of GDP on defence,” she said.

Defence investments can be a bumpy ride.

Market strategist Jessica Amir from moomoo

Aussie company DroneShield was a superstar on the ASX, surging 870 per cent in less than a year before peaking in mid-July, but it has since tumbled 63 per cent.

Ms Amir said 75 per cent of DroneShield’s revenue came from the US government but it was now speaking with other governments about its drone jamming guns.

“The breadth of their revenue will continue to grow – keep an eye on companies like this,” she said.

Mr Richards said not every investment fad became a megatrend.

“Plenty of hype has failed: remember marijuana and buy now pay later?” he said.

Mr Richards said investors could target megatrends through both individual stocks and ETFs.

“For smaller clients the efficient way to do it is through an ETF,” he said. “Larger clients can be more targeted through proper advice. My clients are buying Nvidia, Taiwan Semiconductor, Google and Microsoft.”