A Blue Sea Change

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  Martin Raab
  Investment-Stratege

Many people are rubbing their eyes in disbelief: despite billions spent on campaign marketing, the Grand Old Party has resoundingly lost its majority in both chambers of the US Congress in the midterms. The Democrats are triumphant, and the president is politically on the ropes. Yet for insiders, the result was predictable. In the US, three elements are decisive for election outcomes: energy prices, perceived inflation and patriotism. On the first two, the foreign policy of President Trump has failed across the board. As for patriotism, flirting with Russia as a new buddy does not go down well while the Trump-Kushner family is enriching itself in the crypto scene on the side.

The drubbing has now come at the ballot box. And on Wall Street? Behind the scenes, things are already hectic there. After all, the sea change seems to be right on the doorstep. Over the past 18 months, AI, Big Tech and as much pie in the sky as possible were the measure of all things almost every day. Musk, MAGA and gaga. Anyone without artificial intelligence in their annual report was considered a dinosaur. No data centres in the private equity offering? Weak loser. Now the wind has turned. The Democrats will take a closer look. Data protection, market power, AI regulation and multibillion investment programmes will be put to the political test – in the Senate and in the House of Representatives.

Artificial intelligence may now write sweet poems, produce videos and replace programmers. But so far it has been surprisingly reluctant to answer the question of when the gigantic AI investments will actually pay off. Alphabet, Microsoft, Amazon & Co. are just as reluctant to acknowledge the blue wave. Their astronomical investments in data centres, chips and power supply are likely to be soberly confronted with reality soon. Therefore, of all things, the supposedly boring companies could become the big winners of the coming months. While Silicon Valley philosophises about the future of humanity and visualises the colonisation of Mars, industrial companies, banks, logistics firms and utilities earn their money with rather down-to-earth things. Admittedly, the tech giants still generate good free cash flows, but their share prices could soon look considerably less lofty. Value shares have waited patiently until hardly anyone is willing to pay the entry price to the AI party any longer. In the Oval Office, too, the tech euphoria has evaporated. Fraternising with European carmakers on the open stage, and more checks and balances in the political circus once again. The sea change is in full swing!