Megatrends Without the Megacall: Finding Opportunity from the Bottom Up

Artificial intelligence (AI), deglobalization and electrification are reshaping the global economy. But recognizing a megatrend is one thing. Turning it into an investment opportunity is quite another.

Key Highlights

• Big trends don't guarantee big returns: AI investment could reach US$5 trillion to US$7 trillion in total over the coming years, but where the sustainable economics ultimately emerge remains uncertain.
• Look beyond the headlines: From reshoring to electrification, what happens on the ground can be very different from the obvious investment narrative.
• Let the stocks lead the way: Structural trends can inform fundamental research without making portfolio returns dependent on one big thematic call.

Global equity investors have rarely had more to think about. AI investment is accelerating, deglobalization is reworking supply chains and electrification is driving enormous demand for power and infrastructure. For Putnam Investments, the focus is on understanding how these changes affect individual companies rather than making large thematic calls.

AI: Growth Is Only Half the Equation

The AI investment cycle is extraordinary—and may still be relatively early. Hyperscaler capital expenditure has risen from around US$350 billion last year to approximately US$750 billion this year, with US$5 trillion to US$7 trillion in cumulative spend potentially planned over the coming years.¹ That spending is already flowing through to semiconductors and the wider AI supply chain.

But the bigger the numbers become, the more important it is to follow the economics.

All that infrastructure ultimately needs customers willing and able to pay for the compute it creates. Yet there remains a huge gap between the revenues generated by leading AI models today and the scale of investment planned. Meanwhile, lower-cost alternatives are rapidly improving. If users can get much of the capability at a fraction of the cost, how many will pay a premium for the very best model?

Do you always need a Ferrari to drive to the grocery store?

AI can continue to grow enormously without every company exposed to it becoming an extraordinary investment. The counterargument is Apple, which doesn’t dominate phone volumes yet captures much of the industry’s economics. The question is where durable competitive advantages and sustainable economics ultimately emerge.

When the Story Meets the Real World

Deglobalization offers a different lesson.

Supply-chain resilience has become more important. Companies are diversifying suppliers and paying much greater attention to geopolitical risk. But the much-discussed reshoring boom has been more elusive.

Factories cost billions and take years to build. Toyota, for example, is moving only a relatively small amount of production from Mexico to the United States in response to tariffs, while Daimler Truck has found that producing in Mexico can remain more profitable even after paying the tariffs.

The trend is real, but company actions tell a different story.

Let the Stock Lead You to the Theme

Electrification provides perhaps the clearest example of the bottom-up approach.

Rising demand from data centers, electric vehicles and grid upgrades is increasing the need for power generation. Gas turbines are one beneficiary, with GE Vernova, Siemens Energy and Mitsubishi Heavy Industries dominating the global market, in our opinion.

Yet identifying the trend isn't the investment decision. Siemens Energy and GE Vernova offer similar exposure to rising power demand but at very different valuations—roughly 23 times and 40 times earnings, respectively. That difference is where stock selection comes in. The question isn't whether to invest in electrification, but whether an individual company offers a compelling fundamental opportunity.

The theme shows where change is happening. It can’t tell you which stock to buy.

Keeping the Focus on the Company

Structural change can alter a company’s growth prospects, competitive position and earnings potential. But turning that insight into a large thematic exposure introduces another source of risk—one capable of overwhelming the individual stock decisions underneath it.

The aim isn’t to avoid risk. It’s to take risk where the conviction lies: in individual companies.

"We don’t want the portfolio whipsawed by ‘AI good, AI bad’ headlines—we want our returns to come from stock selection.”

Limiting broader factor exposures helps keep the focus on stock selection—understanding companies, their earnings potential and what is already reflected in their valuations.

AI may transform the economy. Supply chains may continue to change. Electrification could require enormous investment.

But the bigger the trend, the more important it is to come back to the company.