
AI Related Sectors: Investment is increasing across the world due to the growth of Artificial Intelligence i.e. AI. But Rana Gupta, senior portfolio manager of Manulife Investment Management, believes that the biggest benefits of this race may not be to software exporters, but to those companies which are creating the infrastructure to run AI.
Rana Gupta says that investors are currently focusing excessively on IT service companies. But, the real opportunity lies in the data center and infrastructure to support hyperscaler expansion.
First electricity and machines, later software
Gupta points out that global tech companies are committing hundreds of billions of dollars of capex to win the AI race. This money does not go directly to the software companies. First of all, this expenditure goes in sectors like electricity, power system, equipment and metals.
He clearly said, ‘Tech companies need power for AI… and there are many big players in power systems and metals.’ That means the expansion of AI is dependent on electricity and heavy equipment.
Demand for supporting industries will increase with data center
As hyperscalers are increasing their capacity, the need for data centers is also increasing. Switchgear, backup generators, cables and cooling systems are necessary to run a data center. AI workloads consume a lot of power and have to run continuously without interruption. Besides, temperature control is also very important.
According to Gupta, these supporting industries can get stability of orders and earnings in the long run, as the use of AI is continuously increasing and data centers run 24 hours.
Not semiconductor, but opportunity in power equipment
India may not manufacture semiconductors or memory chips on a large scale, but it has a strong presence in the electrical equipment and engineering supply chain. Gupta particularly sees opportunities in power equipment, generators and HVAC i.e. heating, ventilation and air conditioning systems.
With the increase in the pace of data center construction, demand in these areas may increase. He believes that the era of AI will look not just like technology but also like an industrial investment cycle.
Need to change perspective on IT service sector
Gupta says that now it would not be right to consider IT service companies as the sole beneficiaries of AI spending. Tech companies are part of a larger ecosystem. Real multi-year and stable order flow can come from companies that are directly involved in capex spending, such as power and infrastructure companies.
Positive signs regarding domestic economy also
Apart from the AI theme, Gupta is also optimistic about the Indian economy. He says that corporate earnings are showing improvement and credit growth is also increasing. Profits of BSE-500 companies have increased by about 11 to 12 percent, which is a sign of strength in economic activity.
In the financial sector, they especially like those banks and financial institutions that provide loans to small and medium businesses. “Within credit growth, we are most optimistic about SME credit,” he said.
Signs of comeback in private investment
According to Gupta, after a long period of slowdown, private sector investment is showing signs of increasing again. Companies are now talking about new investments in data centres, real estate and metals. Besides, the government’s defense expenditure is also increasing.
He said, ‘For the first time after one and a half years, companies have given positive signals regarding capex in the earnings call.’
Improvement in commercial vehicle sector also
The impact of the boom in private investment and construction activities is also visible on the transport sector. After two years of slowdown, demand for commercial vehicles is improving. Both vehicle manufacturers and finance companies can benefit from this.
Gupta says, ‘After two years of slowdown, the commercial vehicle sector seems to have a good runway ahead.’ According to him, the story of AI is not limited to just tech companies. This could become a massive investment wave taking forward multiple sectors like power, infrastructure, engineering, finance and transport simultaneously.
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