Growth-oriented strategies in sectors such as technology, health care and industrials are attracting significant investments, as reflected in strong inflows. Actively managed approaches like JPMorgan U.S. Tech Leaders ETF (JTEK) can provide exposure to tech while reducing concentration risk. Jon Maier, Chief ETF Strategist, met with Portfolio Manager Joe Wilson to discuss AI's impact on investing.
Where are we with AI? The sheer magnitude of AI-related capex has become a real focus for investors. Where do we see this capex cycle going?
The shift to AI infrastructure, the development of AI applications and the broader adoption of AI are still in the early stages. The top five hyperscalers collectively spent $350 billion in 2023 and 2024, with an expected expenditure of around $300 billion in 2025. It is anticipated that they will reach $1 trillion in annual capex within the next decade. Although the growth in capex will not be linear, a higher trajectory is justified as more clarity around return on investment (ROI) emerges, with AI beginning to replace digital and physical labor. This ROI will drive the expansion of AI platforms on a larger scale. While semiconductors and infrastructure hardware providers have greatly benefited from this capex investment in recent years, much of the value in AI is expected to accrue to the consumer/enterprise interface. The value of AI will be delivered via software, either custom-built by large enterprises—where infrastructure software plays an important role—or software applications built natively on AI infrastructure that solve high-value operations for businesses.
How do you approach opportunities to leverage technology adoption across sectors?
With advancements in AI over the last two years, there is increased excitement for technology opportunities to expand across every sector. Many companies have disrupted existing markets, such as Amazon and Netflix in commerce and media, Tesla in automotive and Robinhood in financials. These companies have taken leadership in major categories by addressing opportunities with a "tech first" solution. The health care sector may present the most exciting opportunity. Over time, leadership in every sector and industry is expected to be achieved by companies that adopt a "tech first" approach. JTEK is designed to be flexible and cast a wider net than what is classically defined as technology, allowing clients to gain exposure to opportunities across sectors and industries. As a result, JTEK is considered less of a sector ETF and more of a secular growth ETF.
Finding the leaders of tomorrow often means looking further down the market cap spectrum for ideas. How does your team incorporate this into the process?
In addition to finding opportunities outside the tech sector, market cap flexibility is another key element of JTEK's approach. Both are important drivers of differentiation compared to passive or other active peers. This is a true all-cap approach, with market cap exposure being an output of the team's genuine excitement and drive to identify emerging opportunities and trends, regardless of size. Identifying new opportunities starts with understanding fundamental problems or shortcomings in advancing solutions and then identifying who or what is solving those problems. Sometimes these solutions are big and obvious; sometimes they are small but growing. An important enabler of this market cap flexibility is the portfolio's benchmark—the Russell 1000 Equal Weight Technology Index. An equally weighted benchmark provides flexibility to not own something if the conviction isn't there, while giving ample opportunity to express conviction where it is highest. Some of the portfolio's largest positions have market caps well below $100 billion.
Is AI the only major source of opportunity for you? Or are you finding other opportunities outside of AI?
AI is a major theme today, with holdings in the portfolio related to the current build-out of infrastructure. However, JTEK is not marketed as a pure-play AI strategy. There are numerous examples of companies whose fundamental opportunity has less to do with AI, such as Netflix, Spotify, Robinhood and Take-Two Interactive, which are significant positions for JTEK. Their AI strategy wasn't a pillar of the initial investment, but it provides optionality for future growth. AI is expected to become akin to the internet, a technology broadly incorporated across all companies. As the team looks forward to the next major platform shift after AI, they aim to evolve with it. Ultimately, the focus is on finding bottom-up ideas where the market is underappreciating the magnitude and/or duration of growth prospects.