By Prof. Dr. Jan Viebig, Chief Investment Officer, ODDO BHF SE.

You need strong nerves to invest in tech stocks. The American semiconductor producer Nvidia illustrates why. Last week, the company announced a 69% boost in revenue to USD 44.1 billion in the first quarter of 2025 and an increase in profit of 25% to nearly USD 18.8 billion, despite US trade policy challenges. Markets responded enthusiastically. But just a few months ago, investors worried that Nvidia ’s business model might be threatened by the Chinese AI developer DeepSeek, foreseeing a possible decline in demand for Nvidia ’s GPUs. These concerns have since subsided due to the emergence of new AI applications.

This example highlights the close relationship between success and failure in the tech sector and the volatility of tech stocks. Investing in single stocks can be particularly risky, and taking a diversified approach with a broad portfolio is generally a more prudent course of action.

To date, investors have focused mainly on AI infrastructure, semiconductors, and other hardware. We anticipate that these will continue to be important areas going forward. In addition to increasingly powerful and faster semiconductors, quantum computing, enhanced computer networking and robotics are also expected to play a more significant role, particularly within financial markets. Big tech companies are investing billions to transition to the AI era, led by the "Magnificent Seven" ( Alphabet , Apple , Amazon , Alphabet , Meta, Microsoft , and Tesla).

Following the success of OpenAI’s chatbot ChatGPT, a number of tech companies has entered the race. Beyond the "Magnificent Seven”, these include France’s Mistral AI, Canada’s Cohere and US-based Anthropic (founded by former OpenAI employees). Forty years ago, the rise of the web spurred the emergence of the global tech giants of today, including Apple , Meta, Microsoft , Alphabet , and Amazon . History could be repeating itself. A recent McKinsey report notes: “AI now is like the internet many years ago: The risk for business leaders is not thinking too big, but rather too small”.1

But history also shows that betting on the wrong company can prove costly. The past is full of cautionary tales: Nokia , Blackberry, and Siemens once dominated the mobile phone market but were forced to retreat. Kodak famously missed the pivot to digital photography. Commodore and Atari , once at the forefront of early computing, have long since disappeared. The risk of making a strategic misstep is no smaller in the era of AI than it was at the dawn of the computer age.

AI development has recently shifted focus. While chatbots are in the spotlight today, AI agents will soon take on a more prominent role, paving the way for artificial general intelligence (AGI). AI agents go a step further than chatbots, which follow predefined patterns: they can plan multi-step actions and make decisions independently.

AI development is progressing from specialised tools like ChatGPT to intelligent, autonomous systems that can understand, adapt, and proactively make decisions. This evolution will enable the emergence of new business models. Self-driving cars, smart homes, and delivery drones are often mentioned as potential future applications of AI, though some are still speculative. More concrete examples include the use of AI in defence, manufacturing robotics, and medical technology, like surgical robots and patient monitoring, in which AI systems can alert medical staff of abnormal changes to blood pressure, blood oxygen levels, or heart rate, saving valuable time.

McKinsey asserts that AI "has the potential to drive a transformation as profound as the steam engine did during the Industrial Revolution of the 19th century." The consulting firm estimates AI’s long-term market potential at USD 4.4 trillion, considering productivity growth across various business models. According to McKinsey, in the past year, the tech industry generated USD 268 billion in value creation globally, while the semiconductor industry generated USD 123 billion. Pharmaceuticals and biotech reached USD 155 billion, and consumer goods accounted for USD 120 billion.2 These numbers highlight the growing significance of tech and semiconductors – sectors that no investor today can afford to ignore. As AI technologies become mainstream, they are becoming both more affordable and more energy intensive. Some estimates suggest that AI systems will consume more energy this year than Japan. This trend is expected to continue (see chart).

Chart: Data Centre Energy Consumption Growth to 2030

Source: International Monetary Fund, Power Hungry: How AI Will Drive Energy Demand, IMF Working Paper WP/25/81, April 2025; from 2024 onwards: estimates and forecasts.

Yet geo-economic uncertainty casts a shadow on the future of the AI industry. Even American tech companies are affected by Trump’s trade policy. For instance, export restrictions on Nvidia ’s H20 processor resulted in revenue losses of USD 4.5 billion for the company in the first three months of 2025.

Other tech companies could also face challenges if the trade conflict between the US and China escalates. Meta’s revenue could be impacted if Chinese advertisers, such as Shein or Temu, decrease their ad spending on Meta and Instagram, the company’s primary social media platforms. In 2024, Meta generated USD 18.35 billion in revenue from China, mainly through advertising, representing 11.2% of global revenue. Apple would also be significantly impacted, despite reducing production there. The company is expected to sell fewer iPhones in China this year. This decline is due to competition from Chinese brands like Huawei and Xiaomi, as well as Chinese consumers’ preference for domestic products amid the trade conflict. While the accuracy of these forecasts is uncertain, due to Trump’s erratic policy, they highlight the risks for the American tech industry.

Investors should carefully consider the potential impact of trade policies. On the other hand, political instability, although causing nervousness in markets, could offer entry opportunities for long-term investors with the appropriate risk tolerance as valuations decline. We continue to regard AI as one of the most promising investment themes in global equity markets.

Investors should keep in mind that AI now impacts many industries beyond just tech and semiconductors. This underlines the importance of building a diversified, strategic equity portfolio to harness growth in AI while reducing the risks of single-stock investing.