Ian Cowie: why I’m bullish on the hottest tech theme

Our columnist on why he is hopeful artificial intelligence (AI) will be a long-term theme. He also explains why he favours Polar Capital Technology over Allianz Technology for exposure to technology shares.

Is artificial intelligence (AI) all hype, like the dot.com bubble that burst 23 years ago, or will it boost productivity so substantially that it could not only justify current share prices but drive them even higher? “AI don’t know” is not an acceptable answer for investors who understand that by the time all doubt has been removed, either way, the market will not be trading where it is today.

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So let’s focus on one very important example of how AI is already improving people’s lives and even, potentially, lengthening them. Last week, the NHS announced that AI is reducing waiting times between patients being diagnosed with cancer and receiving treatment.

It said oncology specialists aided by AI can plan for radiotherapy treatments approximately two and half times faster than if they were working alone, ensuring more patients get treatment sooner and improving the likelihood of a cure. The technology, called OSAIRIS and developed with Microsoft (NASDAQ:MSFT), is being used at Addenbrooke’s Hospital for prostate and head and neck cancers, but also has the potential to work for many other types of cancer.

Dr Raj Jena, oncologist at Cambridge University Hospitals NHS Foundation Trust, said: “OSAIRIS does much of the work in the background so that when the doctor sits down to start planning treatment, most of the heavy lifting is done.”

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Never mind all the nonsense you can get elsewhere about pop stars, who claim their musical musings couldn’t be matched by a robot, or university professors whining about students plagiarising their homework. AI is already helping to treat people with life-threatening illnesses more promptly, in a move that the media might have covered more carefully in calmer times.

This would be an appropriate moment to ‘fess up that I know next to nothing about new technology - and even less about oncology. But investment trusts offer an effective way to share the cost of professional fund management and gain exposure to the economic impact of specialist innovation.

It’s also a good time for investors to consider these opportunities because the potential for AI to be applied in many areas of working life has helped the world’s biggest technology company, Apple (NASDAQ:AAPL), hit a stock market valuation of $3 trillion (£2,360 billion). It also happens to be my most valuable shareholding, since I first invested in February 2016, at the equivalent of $23.75, taking account of a subsequent four-for-one stock split, for shares that currently cost $192.

Apple and Microsoft both played their part in propelling New York’s tech-heavy Nasdaq index 32% higher in the last six months. That was Nasdaq’s best half-year since 1983.

To put this four decade-beating progress in perspective, the Standard & Poor’s 500 index, a broader measure of the American market, has increased by 16% since the start of this year and the Dow Jones benchmark of more traditional Yankee blue-chips is 3.8% up. Meanwhile, the FTSE 100 index of Britain’s biggest businesses trades marginally lower than it began the year.

On a brighter note, I have been a shareholder in the London-listed investment trust Polar Capital Technology (LSE:PCT) for more than a decade. After substantial profit-taking, PCT sits just outside my top 10 shareholdings by value.

Of wider application, independent statisticians Morningstar report that the £3.3 billion investment trust PCT has delivered total returns of 439%, 76% and 19% over the last decade, five years and one-year periods respectively. It did so with a portfolio that is led by MSFT, followed by AAPL, and then the semiconductor chip-maker NVIDIA (NASDAQ:NVDA), whose share price has soared by an eye-stretching 197% this year.

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Despite all that, PCT continues to trade nearly 15% below its net asset value (NAV). So don’t say I am flagging up all this too late.

It is very important to add that shareholders in PCT’s smaller rival Allianz Technology Trust (LSE:ATT) have done even better. The latter £1.2 billion trust achieved total returns of 555%, 84% and 26% over the last decade, five years and one-year - an impressive hat-trick of beating PCT over all three standard comparison periods - but continues to trade at a 13% discount to NAV.

The reason I remain a PCT shareholder, rather than swapping into ATT, is that I recognise all the businesses in the former’s top 10 holdings but cannot say the same for the latter. When neither trust pays any dividends, a degree of familiarity provides some comfort in a sector where I am afflicted by a digital update of the Socratic paradox: all that I know is I don't know.

If there is a global recession, PCT's more conservative, mega-stock approach might prove more storm-proof than ATT's relatively smaller, off-piste opportunism. Having said that, if PCT's underperformance continues, I could change my mind.

Here and now, the NHS news about AI proves a factual reason to hope there might be more healthy returns to come. Contrarian investors might even be reassured by so many cynics’ claiming that AI is all hype and continuing to call the top of this bull market...all the way up.

As I may have pointed out before, perennial pessimism is the easiest way to simulate wisdom about stock markets - but it ain’t the way to make money.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (APPL), Microsoft (MSFT) and Polar Capital Technology (PCT), as part of a globally diversified portfolio of investment trusts and other shares.