The superannuation giant doesn’t believe the artificial intelligence craze has caused a stock market bubble, but it recognizes the risks posed by skyrocketing valuations and market euphoria surrounding much-hyped technology.
The big fund gave members returns of about 10% in the year to June, benefiting from strong gains in international stocks, including in the United States, the world’s biggest market where tech stocks play a key role.
While some investors are concerned that the market is priced too high, investment leaders at several large funds said they do not believe an AI-driven bubble exists, highlighting how AI is boosting profits for a wide range of companies in areas such as microchips and data centers.
Still, they acknowledged that there are risks posed by the sector’s high valuations, including if AI fails to live up to the high expectations priced in by the market.
AustralianSuper, which manages more than $410 billion, signaled it was cautious about the risks of high valuations due to AI optimism, but the fund’s investment director Sean Manuel said the market was not in bubble territory at the moment.
“I think we’re on some kind of rational high, and the next fall is to fall into an irrational high, and when you get there you start worrying,” Manuel said.
If the whole AI theme goes off, the market will suffer because AI is so dominant.
Sean Manuel, Head of Aus Super Investments
Former Federal Reserve Chairman Alan Greenspan famously referred to the market’s “irrational exuberance” in a 1996 speech, and the phrase has become shorthand for how value is inflated by investor sentiment.
Manuel pointed to the recent rise in the stock price of Elon Musk’s SpaceX rocket business and the great excitement surrounding the stock, saying the fund views the SpaceX business as a “leading stock in this space.”
He said one sign of a bubble is when high business prices justify a “totally unrealistic” business case, but the market is not at that point. At the same time, he acknowledged that AI was a key driver of the market. “If the whole AI theme goes away, the market will suffer because AI has been so dominant,” Manuel said.
Dan Farmer, MLC’s chief investment officer, said the fund, which manages about $185 billion, does not believe an AI-driven bubble exists, but added that “careful judgment is needed.”
“We don’t necessarily think it’s a bubble…certainly short-term,” Farmer said.
Over the next year, Farmer said the market will focus more on the cost businesses pay for AI compared to the efficiency gains AI technology brings. Like Manuel, Farmer acknowledged the risks to the market if AI “does not progress at the rate we hope.”
“This is a big driver of revenue and sentiment. Like I said, we don’t foresee any problems there, but if for some reason there was a problem with the AI, that would be a risk,” Farmer said.
Anna Shelley, chief investment officer at AMP, said super funds were “quite used to” AI exposure in listed equities, and said the AI ”theme” was extending from technology stocks to other sectors such as semiconductors and infrastructure. AMP manages approximately $60 billion in retail supermarkets.
He said super funds were looking at concentrations of AI-related risks across other investment classes other than equities, such as private credit, real estate and infrastructure, but were “generally comfortable” overall.
“I think everyone is keeping the risks in mind and watching carefully, but for now we feel safe. We think there are benefits.” [of AI] There’s a very good chance it’s there,” Sherry said.
“We think profitability will improve in many sectors around the world, and we especially think sectors directly related to AI, similar to previous great innovations such as the iPhone, will do very well,” Sherry said.
“So we think there is a potential for super-returns in the AI space.”
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Clancy Yates is deputy business editor. He covers banking and financial services and was previously the national business correspondent in the Canberra bureau.Connect via X or Email.
