Portfolio Manager David T. Cohen, CFA, explores investor opportunities around AI in the value space.
Catalysts in Play: Artificial intelligence (AI) is creating a seismic shift in today’s world, constantly altering how we navigate our everyday lives. From self-driving cars to digital chatbots, AI also offers huge growth potential for the economy.
Today, the market is paying attention to AI’s early winners—such as Nvidia, which designs and sells graphic processing units and chip systems—whose valuations are being driven by lofty expectations for future growth. But there are also a wide variety of opportunities in the value space to capitalize on the emergence of AI technology.
Entry Points: By recognizing the early signs of emerging success stories, value-minded investors can capitalize on the shifting landscape caused by AI and achieve financial gains in a part of the market that has thus far been associated largely with growth investing. Among the areas of the market where we are finding such opportunities:
- Data centers 2.0: There’s a new investment cycle underway that will redesign how computing is done in the cloud and the enterprise level, creating opportunities in both areas. There are broader plays here. As larger amounts of data are processed, the scale of that data increases exponentially. The ability to network that data, connect it, process it, and move it through the system will become increasingly important, leading to opportunities in data center networking chips.
- The healthcare sector: While AI is being used in healthcare settings to assist in diagnostics and to maintain and track medical records, another possibility is to apply it to new drug discovery.
- The financial sector: For years, the financial sector has been a leader in investing in artificial intelligence. Large banks, for example, have been using natural language processing and Large Language Models (LLMs) to create chatbots, which have begun to reduce the need for customer contact and physical branches. As this grows in popularity and scale, banks are able to earn more profit at scale.
Active Strategy: It’s no secret that the impact of artificial intelligence will continue to be felt across industries and sectors—and not just in areas where growth investors operate. At Boston Partners, we don’t want to pay simply for the potential for future growth. Rooted in our “Three-Circle” stock selection process, we want high-quality businesses trading at inexpensive multiples and improving momentum for our investors.
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Terms and Index Definitions
Alpha: A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a product and compares its risk-adjusted performance to a benchmark index. The excess return of the product relative to the return of the benchmark index is the alpha.
Free Cash Flow Yield: A financial solvency ratio that compares the free cash flow per share a company is expected to earn against its market value per share. The ratio is calculated by taking the free cash flow per share divided by the current share price.
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