AI’s rise tipped to widen divide between share markets winners and losers

Trillions of dollars of investment into the AI boom will lift inflation and wide the gap between winners and losers in a structural shift in share market returns, according to professional investors.

The inflation will emerge as AI investments for power, skilled labour, semiconductor chips, cooling systems, data centres, materials, and transmission infrastructure hits $US2.6 trillion ($3.6 trillion) in 2026. Before investment climbs to $US3.5 trillion in 2027, according to consultants Gartner.

“The technology itself is digital, but the foundation it runs on is decidedly physical,” said Robert Almeida, a Portfolio Manager at MFS Asset Management.

“Higher input costs are now a reality for both consumers and businesses. Households see it in food, electricity, rent, insurance, and transportation. Companies feel it through wages, logistics, materials, energy, and technology spending. These pressures are not temporary, they reflect structural shifts in how the economy operates.”

Tomorrow’s share market winners

According to Almeida, this means tomorrow’s share market winners will be the companies that can pass on price increases to customers and higher sustained profits to shareholders, while the losers will be those that see their profits eroded by inflation.

Companies that control scare resources like copper, rare earths, memory chips, and semiconductors will extend their run as winners as they have the most room to pass on price increases to customers. While those that offer replaceable products or services like supermarkets, airlines, restaurants, or apparel retailers will see their profit margins fall.

Over the past past 12 months chip stocks like Broadcom, Intel, Taiwan Semiconductor Manufacturing Company (TSMC), and Advanced Micro Devices. have thumped the market’s returns as their products are relatively scare, high-tech, and in demand.

The gains have helped the Nasdaq-listed Philadelphia SOX Index of 30 leading semiconductor chip companies soar 144 per cent, versus a 2.5 per cent rise for the S&P/ASX 200.

While AI boom proxy and SOX Index member Nvidia has rocketed 1390 per cent in 5 years, after posting a net profit of $US45.5 billion on sales up 85 per cent to $US86.1 billion for its latest quarter.

Investment strategist Almeida adds that the new investing environment of - higher for longer inflation - will continue to reward those companies that sell scare products linked to growth in demand for AI technologies.

AI trade ‘still early’

One of Australia’s leading tech investors, Thomas Rice, the co-founder of Minotaur Capital said he thinks businesses that sell certain computer hardware still offer good value amid AI’s new digital gold rush.

Rice says his fund’s biggest positions are computer memory hardware giants SK Hynix and Micron.

“The [AI] models are getting smarter, but intelligence is really also about how you much memory you can fit in your head,” said Rice.

The fund manager argued the historically cyclical nature of demand for memory hardware means Micron and SK Hynix still trade on low multiples of profits because the market is unsure if their growth will continue at strong rates.

“Memory has been such a boom and bust industry in the past, but I think the current cycle will last a longer than people expect [as demand for AI services expands],” Rice said.

Shares in Nasdaq-listed Micron have already soared 138 per cent to a $US841 billion market cap in 2026, but Rice thinks its valuation on five times profits is still reasonable.

The fund manager also said Nvidia’s valuation remains reasonable on 28 times profits, after the AI bellwether’s jaw-dropping earnings report this week.

“In my view it is still very early [for AI investors], as only a small fraction of the world is currently using AI’s capabilities and we’re already running into capacity issues,” said Rice.

Both Rice and Almeida favour owning some companies that offer exposure to growing demand for AI infrastructure. On the ASX these include the likes of NextDC, Goodman Group, or Macquarie Telecom, although none are specifically recommended by the investors.

Investment bank warns AI is a bubble

Sceptics remain though. They caution the valuations of AI-linked businesses are a bubble fuelled by a mania among naive retail investors and years of central bank money printing linked to the coronavirus lockdowns.

“There are increasing signs of irrational exuberance in the AI boom,” wrote Joachim Klement a Research Analyst at investment bank Panmure Liberum this week. Hyperscalers either need to cut their capex plans dramatically or find $US2 trillion to $US5 trillion in extra revenue to finance them.”

The doubters also point to long-term government bond yields hitting 19 year highs in the US this week. This means risk-free fixed income investments offering returns of 5 per cent or more are attractive versus shares in tech companies that have little in the way of profits.

“We believe that AI is currently in a bubble. The expectations priced into listed and unlisted AI-related companies are way too optimistic,” Panmure Liberum said.

Elsewhere, the AI industry is accused of being engaged in circular financing where larger operators like Nvidia finance smaller operators to buy their products and artificially inflate demand.