To set the stage for the new year, let’s start with a look at macroeconomic backdrop. Stocks soared in 2024. Do you think equities will continue to rise in 2025 and, if so, what are some of the potential drivers?
We remain positive on the outlook for equities heading into 2025. We believe that economic growth will continue to be robust in the U.S., potentially aided by deregulation and tax cuts. Further, the Federal Reserve has the ability to cut rates, from a position of strength. We would, however, nuance the above comments by noting that after two consecutive years of 20%+ gains for global equities, similar gains may be harder to achieve in 2025. For the rally to be sustained, it will need to broaden beyond the mega-cap tech names. We see more potential upside in smaller and mid-sized businesses.
In your Future Trends Volume 11 report, which looks at key trends for 2025 and beyond, you identified several major trends that will have an impact on the markets, such as AI, Cybersecurity, Warehouses, Renewables, Quantum Computing, and more. Can you describe how you selected these major themes and briefly outline their potential impact in the years to come?
Our starting point is to seek to identify future trends that we believe have the potential to grow in importance broadly regardless of the economic backdrop and where regulation and government intervention – if present – are tailwinds for the theme. We also believe that as themes overlap, they can become mutually reinforcing. By way of example, any AI will only be as good as its underlying data, but for these data to have any value, they need to be secure – hence the opportunity in cybersecurity. Equally, data in all forms will need to be powered, hence the case for renewable investments.
Additionally, in your report, you note that “the potential for AI is being overstated in the near-term, the longer-term opportunities around this technology are underestimated.” Can you elaborate on this belief?
Our experience with new technologies is that they rarely develop in a linear fashion. Huge investments have been made in building an AI ‘infrastructure layer’ (mainly comprising NVIDIA’s GPU chips), but few meaningful services have been built on top. Our concern is that near-term expectations for revenues and profits deriving from the AI theme may take longer to play than is currently discounted, which may create scope for disappointment, particularly given currently elevated expectations. Over the longer term, however, it is likely that AI will be deployed in ways that it is currently hard to imagine at present, delivering potentially game-changing productivity gains.