AI boom continues despite market volatility

The technology sector had a strong 2024, and despite some recent ups and downs, the outlook for 2025 remains bright, says Robertson Velez, portfolio manager for the CIBC Global Technology Fund. 

“I started the year very optimistic about the growth into 2025, and I still feel very resolutely that that view is correct,” he said in a recent interview. 

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

According to Velez, artificial intelligence will continue to drive growth, with major companies investing heavily in its future. Although recent news out of China — that AI model DeepSeek-R1 was trained at a fraction of the cost of competitors — sparked concerns about disruption in the AI market, Velez sees the situation differently.

“DeepSeek’s claim is that they trained their model for $5.5 million, whereas OpenAI’s ChatGPT 4.0 was estimated at $60 million — a 10-times improvement,” he said. “However, it’s unclear what is or isn’t included in this training cost.”

He pointed out that DeepSeek’s training estimate included only GPU pre-training costs. The total hardware investment is reportedly $1.6 billion — similar to other AI leaders. Further, the model likely benefited from distillation techniques using Meta’s Llama and OpenAI’s ChatGPT models.

Regardless, Velez said the falling cost of AI training likely won’t lead to a reduction in capital expenditures among major tech players.

“The hyperscalers are not spending this capex to reach a specific AI goal,” he said. “They’re spending this much because they want to maintain AI leadership and don’t want to fall behind their peers.”

Recent earnings calls from Microsoft, Meta and Alphabet confirm they are increasing their AI investments. Velez cites the Jevons Paradox — the idea that efficiency gains lead to greater consumption, not less — as a key reason why AI adoption will accelerate, not slow down.

Velez said he remains heavily invested in AI infrastructure stocks like Nvidia and Broadcom, along with AI cloud providers Microsoft and Google. He said he also sees significant opportunities in enterprise AI software.

Companies such as ServiceNow and Salesforce, which specialize in workflow and customer relationship management, are well-positioned to capitalize on this shift. As businesses integrate AI-driven tools, Velez said the demand for such solutions should continue to rise.

While AI remains a focal point, Velez also sees opportunities in other areas of technology. He predicts that large-cap tech companies will continue to outperform and that new investment opportunities will arise as AI adoption broadens.

“One of the biggest myths in tech is that gains are spread out fairly among all players, which is simply not true,” he said. “In the PC era, 80% of industry operating profits went to Intel and Microsoft. In the smartphone era, 80% of industry operating profits went to Apple. The big tend to get bigger.”

As a result, Velez said he prefers to invest in industry leaders with sustainable competitive advantages rather than betting against them due to their size.  He also identifies semiconductor stocks, such as Texas Instruments, as potential investment opportunities despite recent inventory corrections.

“We don’t buy companies, necessarily, because they’re cheap,” he said. “But, rather, we buy them because we think that, going forward, the expectations and the conditions will change such that they will not be as cheap.”

Therefore, despite market volatility, Velez remains highly optimistic about technology’s future.

“We have to size the opportunity right. AI is a huge potential market, and we’re still in the early stages of the adoption cycle,” he said. “So, I’m very optimistic that we will continue this trend for 2025.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.