We have a positive outlook for the BNP Paribas Disruptive Technology as we look ahead to 2025. We have a high degree of confidence that the secular themes around digital transformation remain intact. This would include things like artificial intelligence, cloud computing, and foundational technologies such as cybersecurity and semiconductors. IT spending remains a key priority for executives, and we expect that span to grow on a year over year basis.
The demand backdrop is positive from a valuation perspective. Valuations are mixed, but we’re still finding stocks specific opportunities based on our bottoms up work. So overall we remain bullish as we think about the year ahead.
AI has been a huge developing theme. Will this continue?
Artificial intelligence is a key theme for the BNP Paribas Disruptive Technology, and we expect that to persist into 2025. The large language models continue to progress rapidly with each successive release, and that is unlocking new capabilities from advanced reasoning to image and video generation. 2024 was a year in which we saw enterprises evaluate the effectiveness of AI, and 2025 is the year in which we think we’ll see enterprises more broadly adopt the technology.
We also believe there’s an AI arms race developing between the Mega-cap technology companies in the United States. We estimate those they’ll spend over 150 billion in combined capital expenditures in 2024, and we expect that number to grow further in 2025. That should serve as a tailwind throughout the technology supply chain.
What are the main areas of interest for you, beyond AI?
Beyond AI, we focus on other areas of digital transformation, including cloud computing, automation, the Internet of Things (IoT), foundational technologies, and emerging technologies such as autonomous vehicles or the metaverse. Importantly, 30 to 40% of our assets are invested outside of the IT sector. We fundamentally believe there are more winners than those that just reside in the technology sector. Therefore, we have exposure to areas including consumer, industrials, healthcare and financials.
What are the challenges for the Disruptive Technology theme?
We are mindful of various risks and challenges for the disruptive technology theme over the medium and long term. One is around valuations. Right now, we see many stock specific opportunities based on our bottoms up work. But we must be mindful of expectations get too far ahead of reality. Another area to monitor is around geopolitical risk. To the extent that there is global turmoil or risks abroad, particularly in regions with sensitive semiconductor technology that could pose a key risk for the strategy.
And then finally, technology overall is such a dynamic and innovative sector. There are always companies that are getting disrupted, and we need to be mindful that we’re invested in the innovators that are doing the disruption rather than those that are getting disrupted.
Two industries offer a competitive edge for companies globally, beyond tech
There are several industries and sectors that are driving disruption in the global economy. Technology is our main focus because that’s where we identify the most innovators. Within that we particularly focus on the software and semiconductor industries. In software, for example, developers are leveraging generative AI to help them autocomplete code, which is increasing their productivity. And software companies overall are beginning to embed AI into their products to make them more useful for customers. Outside of technology, we also believe there’s a lot of innovation in the healthcare industry, where companies are beginning to leverage AI to help them with drug discovery, as well as in industrials, where companies are leveraging innovative cooling solutions to help them in the data centre, build out.
What is the value of investing in disruptive companies over investing in technology alone?
The key focus area of AI development is around the build out of data centres. Approximately 40% of our AUM is invested in foundational technologies like semiconductors and alternative energy. The cloud service providers driving AI innovation need the best graphics processing units, as well as energy efficient solutions to help power their data centres. We’ll also evaluate industrial companies involved in innovative solutions, such as those that build chillers and those that build líquido cooling solutions to help resolve any key issues within the data centre.
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