As rapid developments in artificial intelligence (AI) continue to transform the world around us, astute investors are examining how their portfolios are exposed to this technological shift. Although the Magnificent Seven have been the default investment for AI exposure, we see some potentially more attractive opportunities across international markets.

For instance, Asia plays a central role in global semiconductor manufacturing and hardware supply chains that support hyperscaler infrastructure. Across international developed markets, there are less visible AI enablers and adopters facilitating build-out and future use cases. Importantly, our investment team sees the opportunity set extending well beyond the technology sector. Global players across various sectors are playing a crucial in powering the AI revolution, and it’s just one more reason why we think investors should consider a permanent allocation to companies domiciled outside the U.S.

Technological Underpinnings

The technology sector is at the heart of the AI boom, providing the key inputs to support demand for greater processing power. There are many components required for AI server systems, providing multiple avenues for exposure. The various areas that are seeing growth due to AI expansion can be divided into three broad categories: semiconductors, switches, and assembly.

A report from the Global Semiconductor Alliance and Accenture estimates that the inputs to produce an integrated circuit chip for AI use must cross more than 70 borders before the product is complete, highlighting the globalized nature of this industry.¹

Infrastructure and Power

According to a Goldman Sachs report, global power demand is expected to rise by 50% by 2027 and 160% by 2030, creating a compelling opportunity for companies that can generate and distribute more energy.² Hyperscalers have been looking towards renewable energy, and some European companies have been exploring alternative power sources and strategic partnerships with datacenters to provide this power. This shift to alternative energy provides a new route for AI exposure in the utilities sector. And at the source of electricity transmission, raw materials like copper are essential for power-grid expansion and silver is a key component in high performance GPU chips.

Further, AI-focused data centers require distinctive infrastructure and equipment. For instance, AI servers call for specialized data cooling systems to help with the excessive heat they generate. They also require larger switchgear and power distribution systems that serve to reduce complexity and costs. Suppliers of this infrastructure, such as those in Europe and Japan, stand to benefit from this trend.

Physical Space

McKinsey estimates that by 2030, roughly 70% of demand for data center capacity will be for data centers that are uniquely equipped for AI workloads. Current data center vacancy sits at a record low 3%, calling for the construction of new data centers or the adaptation of existing centers.³

Currently, cloud service providers make up most of the demand for data center capacity, and they are either constructing new facilities or teaming up with colocation providers that are expanding their infrastructure. Colocation providers that customize data centers to hyperscaler’s needs may capture the most upside from the AI trend. Demand is currently outpacing supply, putting pressure on firms across all major regions to meet this need.

Disruption or Opportunity?

So what’s the key takeaway? We view AI as a global phenomenon, and opportunities are not limited to the U.S. tech heavyweights. Moreover, we think investing in international equities allows for AI exposure in ways being overlooked by the bulk of domestic investors. While AI is driving growth across industries and raising disruption concerns to traditional tech companies, its ongoing evolution may ultimately improve the outlook for many companies that may have fallen out of favor. Despite ongoing debate over AI’s return on investment, capital expenditure spending remains highly visible, with management teams emphasizing that underinvesting poses a far greater risk than overinvesting. Trivalent Investments will continue to research and focus on trends in AI and across various sectors to identify attractive investment opportunities.

¹ The Global Semiconductor Alliance (GSA) and Accenture, Globality and Complexity of the Semiconductor Ecosystem. 2020.

² Center for Strategic & International Studies (CSIS), Mapping the Semiconductor Supply Chain: The Critical Role of the Indo-Pacific Region. 2023.

³ McKinsey & Company, AI power: Expanding data center capacity to meet growing demand. October 29, 2024.