Source : THE AGE NEWS
Superannuation giants do not believe the artificial intelligence craze has created a sharemarket bubble, but they acknowledge the risks posed by surging valuations and market euphoria surrounding the much-hyped technology.
Major funds delivered returns of about 10 per cent for their members in the year to June as performance benefited from big gains in overseas shares, including the world’s biggest market in the US, where technology stocks play a crucial role.
While some investors worry markets are over-priced, investment bosses from several major funds said they did not think there was an AI-driven bubble, as they also highlighted how AI was driving profits across a widening range of companies in fields including microchips and data centres.
Even so, though they acknowledged there were risks created by the sector’s soaring valuations, including if AI did not live up to the high expectations being priced in by markets.
AustralianSuper, which manages more than $410 billion, indicated it was cautious about the risk of high valuations driven by AI optimism, though the fund’s investment chief, Shaun Manuell, said markets were not in bubble territory at the moment.
“I think we’re in sort of rational exuberance, but the next tip-over is into irrational exuberance, and it’s when you get there that you start to worry,” Manuell said.
If the whole AI theme comes off, markets will suffer because it’s been so dominant.
AusSuper investment chief Shaun Manuell
Former US Federal Reserve chair Alan Greenspan famously referred to “irrational exuberance” in markets in a 1996 speech, and the phrase has become a shorthand for how values can be inflated by investor sentiment.
Manuell pointed to the recent float of Elon Musk’s rocket business SpaceX – and the large amount of excitment around the stock – saying the fund looked at SpaceX business as a “bellwether stock in this space”.
He said one sign of a bubble was when the high price of a business justified a “completely unrealistic” business case, but markets were not at that point. At the same time, he acknowledged that AI had been an important driver of markets. “If the whole AI theme comes off, markets will suffer because it’s been so dominant,” Manuell said.
MLC’s chief investment officer Dan Farmer said the fund, which manages about $185 billion, did not think there was an AI-driven bubble, but added that “discretion is required”.
“We don’t see it as necessarily a bubble over … certainly the short term,” said Farmer.
Farmer said that over the next year, there would be growing focus in markets on the costs paid by businesses for AI, compared with the efficiency gains that the technology delivered. Like Manuell, Farmer also acknowledged the risk to markets if AI “doesn’t continue on with the momentum that we expect”.
“It’s been such a dominant driver of earnings and sentiment. As I said, we’re not foreshadowing problems there, but that would be a risk if we did see a hiccup in AI for whatever reason,” Farmer said.
AMP chief investment officer Anna Shelley said the super fund was “pretty comfortable” with its exposure to AI in listed shares, saying the AI “thematic” had broadened from technology stocks to other sectors such as semiconductors and infrastructure. AMP manages almost $60 billion in retail super.
She said the super fund was looking at the concentration of AI-related risks across other investment classes aside from shares, such as in private credit, property or infrastructure, but overall, it was “largely comfortable”.
“I think it’s something that everybody’s watching cautiously with an eye to the risk, but for now, we’re comfortable. We think the benefits [of AI] are highly likely to be there,” Shelley said.
“We think there’s going to be improvements in profitability across many sectors globally, and we think, in particular, that directly AI-related sectors will do very well, much like previous great innovations, for example, the iPhone,” Shelley said.
“So we think there’s some prospect for some super profits in the AI space.”
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Clancy Yeates is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X or email.
