Between trust and scepticism: the AI chronicles

Sit down with a group of investment professionals today and one question is bound to come up: are you an AI believer?

During this quarter's earnings season, US mega caps have continued to beat expectations, giving believers confidence that there isn’t a bubble, and even if there is, that it’s not likely to burst anytime soon.

Companies in the S&P 500 index posted a positive sales surprise of over 2% for the current and prior quarter’s earnings, while earnings also surprised positively by 7.8% and 6.3%, respectively, for the current and prior quarterly earnings seasons.

AI sceptics, meanwhile, continue to look for ways to diversify[1] away from concentration risks, wary that narrow leadership and steep valuations could lead to a rapid reversal of fortunes.

The flows show

Since the start of this year, US core equity ETFs have raised over $45 billion of net fund flows in Europe.[2] At the time of writing[3], we are starting to see net outflows due to some investors pulling their investments and locking in profits. However, it’s not been one-way traffic, with both inflows and outflows indicating ongoing fluctuations in sentiment.

This paints a picture of two very different widespread beliefs about the outlook.

On the one hand, there are those investors who want to capture continued AI growth, believing evidence of a bubble remains weak overall. In a recent webinar L&G specialists discussed this topic in depth – have a listen to hear their take.

For those looking to gain exposure to AI specifically or to the mega caps connected to this theme, many different flavours of investment approach are available. This includes market-cap weighted, US-regional-focused and thematic-focused exposure offering access to the entire value chain of infrastructure, applications and services.

Another aspect of the AI story is other industries that have potential to be indirectly boosted by AI developments. Key themes to keep an eye on over coming years are clean energy and grid storage. The IEA’s base case suggests global electricity consumption for data centres will double to reach around 945 TWh by 2030.[4] The supply of electricity from renewables, meanwhile, is forecast to more than double by 2030, according to the IEA, meaning renewables will be at the forefront of the AI-driven demand surge.[5]

What about the sceptics?

For AI sceptics, there are also many different ways of diversifying away from AI and mega caps.

Within the equity universe, a globally diversified approach could help to capture regions where sources of growth other than AI dominate. Another important consideration is the size of companies captured in an index. By seeking exposure to small caps and mid caps, investors reduce concentration risk.

For sceptics unable to shake their fear of missing out (FOMO), an equal-weighted approach to regional or large-cap exposure could provide both sector balance and mega-cap representation.

Alternatives can provide a decorrelated source of return potential, with assets such as commodities having drivers that are distinct from equity markets. Increasingly, liquid alternatives provide a practical and transparent way of adding a wide range of different alternative risk premia to a diversified portfolio.

The benefits of an open mind

Both AI believers and sceptics can gain access to parts of the markets that best fit with their beliefs and preferences. Keeping a broad mind is always key when it comes to identifying the best targeted or diversified exposure.

 

Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass.

[1] It should be noted that diversification is no guarantee against a loss in a declining market.
[2] Source: ETFBook as at 27 November 2025.
[3] 27 November 2025.
[4] Source: Energy demand from AI – Energy and AI – Analysis - IEA
[5] Source: Global installed renewable power to more than double by 2030: IEA report