International viewpoints: bubble or boom, trouble is brewing

As with any investment, your capital is at risk.

It is too early to tell whether we are in an AI bubble or a boom. Both involve rapid increases in valuations and investment; the difference lies in how expectations meet outcomes. A boom builds productive capacity, and rising profits justify higher valuations. A bubble detaches from cash flows, as optimism outpaces earnings.

Both phases bring risk. As Carlota Perez (scholar, researcher, and international consultant) observed, technological revolutions, from railways to the internet, don’t shield investors from losses. Each began with a frenzy of capital and competition, when infrastructure was built at an unsustainable pace and investment overshot near-term demand. The pain that followed created the foundations for long-term productivity gains.

Whether AI proves a bubble or a boom, today’s trillion-dollar capex cycle probably overestimates near-term demand. That does not diminish AI’s transformative potential, but the question remains: who will capture the value? History suggests the surplus from technological shifts often leaks from infrastructure builders, which become commoditised, to users and society at large. The internet, containerisation and electrification all created vast wealth but little profit for many of their builders. As capacity rises and prices fall, infrastructure becomes indispensable yet unprofitable. AI may follow the same path.

We are already seeing this in the US: the cost of building and running frontier models is enormous, and competition is intense. It is becoming increasingly likely that profits from large language models (LLMs) development are competed away before they can justify current valuations. Instead, as model performance converges and open-weight alternatives proliferate, value is likely to accrue to companies applying AI productively, or to consumers enjoying cheaper, better services.

Systemic fragility

Some argue this end state is decades away and that vast new markets still lie ahead. Perhaps. But US financial conditions make even a modest reset risky. Fragility stems from unprecedented concentration in both markets and the real economy. A handful of AI leaders dominate the S&P 500, and unprofitable tech valuations are at record highs. Meanwhile, a record share of US household savings sits in stocks, mostly in passive funds tracking the same few companies. The top 20 per cent of earners, who drive more than half of consumption, are also the most exposed to equities. When both economic growth and market wealth hinge on a narrow theme, fragility rises.

Leverage compounds the risk. Private-debt assets under management now exceed $3tn (up 50 per cent in five years), private equity holds $2.5tn in dry powder, and credit spreads remain tight. Investors are chasing yield, and AI companies are tapping it. OpenAI’s trillion-dollar compute commitments span Oracle, AMD, Nvidia and Broadcom, suppliers that have, in turn, invested back into OpenAI, inflating each other’s valuations. These circular arrangements recall the 1990s telecom boom, where balance sheets funded demand and market caps soared without matching profits.

International markets: a different approach

Although the AI build-out appears US-centric, its effects will be global: if exuberance fades, few markets will be spared. Our best defence, as international growth investors, is to own resilient, adaptable businesses and focus on areas of the AI value chain where value can endure.

We favour infrastructure leaders such as TSMC and ASML, with entrenched customers and pricing power even in downturns. Samsung Electronics, another long-term holding, is once again being recognised by the market for its key position in memory chips, but, in our view, remains undervalued. Plenty of other names in the semiconductor supply chain remain attractive. Beyond infrastructure, opportunity lies in applications. For innovative software companies such as SAP, Adyen, monday.com, MoneyForward and Shopify, AI is an opportunity to realise efficiency, improve products and strengthen their competitive advantage. 

China’s alternative to the AI theme

China offers a complementary and more balanced approach to playing the AI theme than the US. Strategically, AI seems not to be perceived by the country's leadership as an end in itself, but as an enabler of industrial and electrification goals. By prioritising open-weight systems and embedding AI into manufacturing, China links intelligence with action. Already dominant in batteries, magnets and power electronics, it is positioning itself at the intersection of intelligence and production. This may prove less speculative and more durable than the Western focus on compute.

We are exposed to this theme through Tencent and Tencent Music Entertainment, but we continue to explore opportunities in adjacent sectors, robotics, power electronics and biotechnology, where intelligence, energy and manufacturing converge.

Risk factors

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in November 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

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