Right now, there are many reasons why AXA Investment Managers are optimistic about the technology sector: not only did it markedly rebound in 2023 but there is an abundance of innovation, new product cycles and a potential cyclical upturn for the robotics sector in 2024.
More specifically, Tom Riley, Head of Thematic Equity Strategies at AXA IM Core, believes 2024 should see a cyclical recovery in the automation and semiconductor markets. One of the key drivers behind the increased expectations for the semiconductor industry is the increasing demand for AI. As its capabilities and applications grow, it becomes increasingly disruptive – but this evolution requires vast amounts of data and processing power, which semiconductors can provide.
Emerging generative AI and large language models, such as the highly publicized ChatGPT, depend upon higher memory speeds and capacities. “This, combined with AI’s increasing cross-sector penetration and its adaptability across the infrastructure, technology and application level, are likely to fuel the expected demand for semiconductors. Currently, most of the revenues for the AI industry are from the infrastructure segment – these are the semiconductors and computing power that is driving the industry,” Tom Riley says. Companies like Nvidia , AMD and Cadence Design Systems, a software company focussed on designing chips, are well positioned here.
During 2022 and 2023 we have been through a period of digestion as that excess capacity gets absorbed and this contributed to slowing automation orders. However, there are tentative signs this trend is bottoming out and may return to growth in 2024 onwards. The International Federation of Robotics’ 2023 World Robotics Report forecasts the demand for robot installations will diverge even in a potential economic slowdown and predicts a new worldwide annual installation record of over 600,000 units.
Semiconductor companies were heavily affected by supply chain volatility during the pandemic, which had a knock-on effect on both industrial machines and consumer electronics markets. But new governmental policies are likely to give semiconductor companies a boost. “The US CHIPS and Science Act provides just one example of government response to address this – tens of billions of dollars have been earmarked for semiconductor facility investments from countries around the globe since 2021 to support domestic manufacturing – in the EU, Korea and Japan for example,” Tom Riley emphasizes.
