Don’t give up on AI revolution despite sell-off in technology stocks

This week’s abrupt sell-off in technology stocks – even after yesterday’s rally – should be a wake-up call for anyone with a stake in the artificial intelligence (AI) industrial revolution.

AI will radically change the world of work and much else. But the reverse is a reminder that the road ahead will be bumpy and apprehension will arise from statements that could be bad news for companies in the sector.

The upset in the past few days was aggravated by remarks from US commerce secretary Howard Lutnick about the types of microchips that the $4.3trillion (£3.2trillion) Silicon Valley titan Nvidia sells to China.

This reaction suggests that it’s time to assess your exposure to the sector – and to consider data centres, which are one of the new ways to bet on the upheaval to be wrought by AI.

These massive sheds, full of computers that store, process and disseminate data, are central to the expansion of AI, hence being hailed by some as ‘the engines of modern life’.

Fulfilling the demand for these mega warehouses is predicted to trigger a $3trillion (£2.2trillion) construction frenzy, with as much as $500billion (£370billion) being spent on power plants and transmission systems alone.

Future proof: AI will radically change the world of work and much else 

Shares of companies involved in this boom have leapt in line with these forecasts. The price of GE Vernova, the US group that provides data centre ‘electrification solutions’, has jumped by 231 per cent over the past year.

But even it retreated this week following a warning from Sam Altman, the billionaire boss of OpenAI – the $500billion (£370billion) US group behind ChatGPT, the ground-breaking generative AI system.

Earlier this month, Altman said: ‘Are we in a phase where investors as a whole are overexcited about AI? My opinion is, yes.’ But he continued: ‘Is AI the most important thing to happen in very long time? My opinion is, also, yes.’

These words, which coincided with a study showing businesses’ expenditure on AI is not showing returns, spooked Wall Street traders who have been driving up shares in key AI players. 

This list includes the ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) as well as Palantir, the defence and health analytics titan.

You are likely to have money in all or some if you hold global funds. This is not time to flee, but to find out more about the outlook and explore opportunities in the vast spaces of data centres.

Prepare for volatility

Altman compares current conditions in tech stocks with the dot-com bust of 2000.

Ben Rogoff, manager of Polar Capital Technology, the FTSE 100 investment trust, thinks a better comparison is with 1995 to 1998, when the internet’s development was gathering pace.

He says: ‘During that time the US tech-heavy Nasdaq index rose by about 350 per cent.

‘But there were seven big drops along the way. There are always challenges when you are on a steep and rapid innovation curve – AI is an innovation on the scale of the internet, or steel.’

Two shocks have already hit the sector this year. In January, ChatGPT seemed imperilled by DeepSeek, its low-cost Chinese rival. And in April, Donald Trump’s tariffs announcement sparked another tumble.

Enthusiasm was soon rekindled. Nvidia was $178.21 (£131.65) yesterday, having recovered from its April low of under $87 (£64.28) and analysts are forecasting a further advance. Shares are more than 31,000 per cent higher than a decade ago.

Polar Capital Technology is a ‘maximalist AI trust’, says Rogoff, structured to put investors ‘in the front row of the revolution’.

He argues that we cannot yet tell how great the disruption caused by AI will be, but that one of the breakthroughs could be a ‘democratisation’ of healthcare, with low-cost access to Harley Street-style medical expertise for low-income patients.

The latest evidence indicates that the speed of the transformation may be scary.

Pauline Llandric, technology portfolio manager at AXA Investment Management, comments: ‘AI has moved from tech curiosity to an essential tool for consumer and companies, as evidenced by OpenAI’s ChatGPT whose weekly active users rose from about 400million in February to 700million this month.’ You cannot invest in OpenAI, but Microsoft has a slice of the group.

How to back the construction boom

The focus on data centres reflects the growth forecast for the spread of warehouses whose requirement for energy and water is ever more controversial.

According to one prediction, US data centres could gobble up 25 per cent of the nation’s gas and electricity by 2030. Meanwhile, every request made to ChatGPT uses 500ml of water – about the same as two small glasses.

At present the global data centre market is worth about $243billion (£179.60). But by…