‘Coca-Cola is a global trend that withstands economic cycles’

Artificial intelligence will continue to attract capital, but with expectations so high, even a minor disappointment can trigger strong market reactions. And opportunities are not confined solely to US tech giants. Lukas Kamblevicius, Co-Head of the Qep investment team at Schroders, is looking for value in Europe and Japan, Asian semiconductors and innovative Chinese companies. When it comes to small and mid-caps, however, he advises a selective approach, favouring companies with solid balance sheets and the ability to self-finance. And in his selection of individual stocks, he pairs Coca-Cola with a wide range of other names, from the Japanese financial sector to European industry.

OpenAI and Anthropic are leading the way in AI development, but progress by other providers is intensifying competition. We expect investment and development activities to continue at a sustained pace, as confirmed by the hyperscalers’ capital expenditure and funding rounds. Exercising control over research and development in the private sector is highly complex, and the appetite for significant public intervention appears limited, particularly in the United States and China, where technological leadership is of strategic importance. Any drastic intervention or slowdown would be viewed negatively by the market. One sector that could, however, benefit from this is cybersecurity.

The consensus points to earnings growth in most regions and sectors. The development of AI infrastructure and related investment continues apace and remains a key driver of growth. Component manufacturers, companies involved in building physical infrastructure, utilities and financial institutions have all seen an improvement in earnings during this cycle. Geographically, the United States is showing solid earnings momentum, whilst Taiwan and South Korea remain key hubs for semiconductors and memory chips. Chinese technology companies have also seen improved earnings and renewed investor interest. The main risk today is not so much a contraction in earnings, but rather that expectations may prove difficult to sustain or that spending guidance may fall short of expectations. Recent history shows that even minor disappointments can trigger sudden reversals when expectations are high.

The United States offers an unrivalled range of high-quality companies. Europe and Japan, however, present greater value opportunities. In Europe, this is particularly true in the financial, industrial, utilities and infrastructure sectors. Japan, on the other hand, is benefiting from improvements in corporate governance, wage growth and shareholder returns. Taiwan and South Korea are an integral part of the global semiconductor ecosystem. In China, we see opportunities in companies capable of genuine innovation, whilst India offers attractive long-term growth potential, albeit with high valuations. Latin America, on the other hand, remains largely tied to commodities.

Small-caps typically have less robust balance sheets, are more reliant on external financing and have a reduced ability to absorb rising costs. Mid-caps offer a better balance, whilst still carrying similar risks. Consequently, we favour companies capable of self-financing their growth, protecting their margins and exercising pricing power. Lower financing costs, improved financial visibility and higher capital expenditure could benefit some small- and mid-caps. However, the selection of individual stocks remains more important than an allocation based solely on market capitalisation.