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Lombard Odier: Tech giants are becoming geostrategic for US

As the race to develop AI heats up, the US tech giants are becoming important strategic bulwarks for the world’s largest economy.
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Despite a run-up in the ‘Magnificent Seven’ stocks on hype surrounding artificial intelligence (AI), some of these US tech giants are becoming too strategically important for the US as a nation to ignore.

This is according to Michael Strobaek, chief investment officer at Lombard Odier, who labelled them as “geostrategic” at a recent media briefing.

He said: “There is a geopolitical, economic battle beginning to accelerate in this world that is fracturing between the major powers economically and militarily, between China and the US.”

“I think of US tech as geostrategic bulwarks for the US and for the US economy to stay ahead in that geopolitical battle.”

One of the most recent examples of this rising tension between the US and China has been in the semiconductor space.

The US has been trying to prevent the sale of the most advanced AI chips to China via export bans to curb its high-tech military technology and AI development.

The restrictions not only prevent American firms from exporting to China, but also any company worldwide that uses US chip technology – including the Dutch chip-making equipment manufacturer AMSL, which sells the latest lithography tools needed to produce the most advanced semiconductors.

However US courts this year are expected to decide the result of the ongoing antitrust cases against US tech giants Google and Meta Platforms – both of which have been rapidly investing in AI technology through the purchase of the latest AI chips from Nvidia.

Meta Platforms founder Mark Zuckerberg recently revealed the company’s plans to spend $18bn on Nvidia’s latest GPU chips to build artificial general intelligence.

Antitrust discussions taking a back-seat

Strobaek said: “There years ago, everybody wanted to break up these companies because they were too powerful, they were too dominant, they sat on all kinds of business models that nobody could grab at.”

However discussions surrounding the break-up of these firms has all but disappeared in more recent times, he said.

“I think that this element of how to invest should play a key role in a world that on the margin looks to become less stable, a little bit more risky,” he said.

As such, speaking about US equites more broadly, the Swiss private bank has “materially” increased its strategic allocation to US equities recently.

This is despite some investors concerned about the high valuation of US equities relative to equities in the rest of the world, which may not be a good sign for future returns from the asset class.

However Strobaek said that the gap between valuations of US equities and the rest of the world has been in place for years and has not previously prevented outperformance from the asset class.

Performance of US v MSCI World ex US and MSCI Emerging Markets

Indeed, US equities have outperformed the rest of the developed world and emerging markets for the past decade.

“But equities are not the only game in town,” the chief investment officer added. “The real new element in this environment is that safer asset yields have gone materially up as interest rates have gone up.”

“Now bonds are serious alternatives to equities in any client portfolio,” he said. “It takes more risk appetite than normal to go into equities and forego the safer assets.”

This is why the bank has reduced equity exposure for its more conservative investors and on the margin are a bit more cautious on its strategic allocations to equities.

“Markets have come a long way,” Strobaek said. “They look quite extended. I believe that we should be going in for a healthy consolidation and or correction.”

“Cash and bonds especially for conservative investors with a shorter time horizon, I think are a great alternative in the current environment,” he added.

Part of the Mark Allen Group.