Key Concepts
- New World Order: A shift in global dynamics away from deglobalization, characterized by increased urgency around reimagining supply chains, advancing AI, and domestic manufacturing.
- MAG-7 vs. Magnificent Thematics: Transitioning investment focus from the Magnificent Seven (large tech companies) to broader thematic investments centered around AI, automation, innovation, and longevity.
- Every Company is a Tech Company: The idea that all businesses, regardless of sector, must integrate technology and AI to remain competitive.
- Extinction Events/Blockbuster Event: The risk of businesses becoming obsolete if they fail to adapt to rapid technological advancements, particularly in AI.
- Convergence of Corporate & Government Spending: Increased investment in AI from both private companies and government entities.
- Volatility as Emergence: Viewing market volatility not as a negative signal, but as an indicator of emerging trends and opportunities.
Market Volatility, Thematic Investing, and the “New World Order”
The discussion centers around the current market landscape following the World Economic Forum in Davos, characterized by renewed volatility and a shift in global economic thinking. The speaker, Cheri Paul of Morgan Stanley, argues that the language used at Davos signaled a move away from “deglobalization” – described as a “conscious uncoupling” – towards a “New World Order,” a phrase she notes carries a more urgent and potentially harsher tone. This shift underscores the increasing need to reimagine supply chains, bolster domestic manufacturing (particularly in the USA), and accelerate the adoption of Artificial Intelligence (AI) and automation.
The speaker emphasizes that volatility is an inherent part of investing and shouldn’t necessarily be interpreted as a negative sign, but rather as an indication of “something emergent” happening in the market.
From MAG-7 to Magnificent Thematics
A key argument presented is the need to move beyond focusing solely on the “MAG-7” (the seven largest tech companies – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta). While acknowledging the continued importance of these companies, Paul suggests a shift towards what she terms the “Magnificent Thematics” – investment areas centered around AI, automation, innovation, and longevity.
She explains that the MAG-7 companies are evolving into holding companies with diverse interests, blurring traditional sector lines. For example, tech companies are now involved in filmmaking, and consumer discretionary companies are launching rockets. This distortion necessitates an equal-weighted approach to investing in these companies, rather than concentrating solely on market-cap weighting. However, she believes significant value remains to be unlocked within these companies, particularly in the energy sector.
Data referenced indicates that equal-weighted areas have outperformed market-cap weighted S&P 500 at the beginning of the year.
The “Every Company is a Tech Company” Thesis
Paul’s central thesis is that “every company is now a tech company.” She argues that businesses must understand and integrate AI into their business models to remain competitive. Those that fail to do so risk facing “extinction events” or what she calls a “Blockbuster event” – a reference to the video rental company’s failure to adapt to streaming services. This adaptation will drive productivity gains, cost reductions, and advancements across all sectors, particularly in healthcare.
The convergence of corporate and government spending in the AI space is highlighted as a significant factor driving this technological acceleration.
Nuances within the Tech Sector & Areas of Underweighting
The discussion acknowledges that not all areas within the tech sector are equally promising. Specifically, the speaker notes that traditional “software” stocks are currently being underweighted within their portfolio due to their vulnerability to advanced AI. While software is included in the broader AI advancement area, many software stocks are perceived as underperforming and lacking clear growth potential.
She clarifies that the focus should be on companies adopting AI to compete in a landscape of “massive hyper scaling of borrowing and spending.” This means looking beyond traditional tech companies to identify businesses across all sectors that are successfully integrating AI into their operations.
The Role of the Dollar and Geopolitical Considerations
The weakening of the US dollar is presented as a contributing factor to the urgency surrounding domestic manufacturing and AI adoption. The speaker implies that a weaker dollar incentivizes bringing production back to the United States and investing in technologies that can enhance competitiveness. The “New World Order” framing suggests a broader geopolitical context where supply chain resilience and technological leadership are paramount.
Notable Quotes
- “Volatility doesn’t necessarily mean that something bad is happening. It means something emergent is happening.” – Cheri Paul
- “Every company is now a tech company, and if you don't understand that and realize that and understand what the application to AI is going to be in your business model, then you're going to be facing what I'm explaining to clients is the Blockbuster event.” – Cheri Paul
- “There’s a convergence between corporate spending and government spending in the AI space.” – Cheri Paul
Conclusion
The core takeaway is that the market is undergoing a significant shift driven by geopolitical factors, technological advancements, and a changing economic landscape. Investors should move beyond a narrow focus on the MAG-7 and embrace a thematic investment approach centered around AI, automation, innovation, and longevity. The most crucial element for businesses is to recognize that they are, fundamentally, tech companies and must prioritize AI integration to avoid obsolescence. Volatility should be viewed as an opportunity to identify emerging trends and capitalize on the “New World Order” unfolding in the global economy.
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