Portfolio Manager Hamish Chamberlayne explores how, in a world marked by geopolitical upheaval, artificial intelligence (AI) is transforming traditional economic forces, presenting both opportunities and challenges.

In today's world, characterised by heightened confusion and unpredictability, geopolitical dynamics are increasingly overshadowing traditional economic forces. Nations worldwide grapple with declining workforce participation, ageing demographics, unproductive government expenditure, and substantial fiscal deficits. Yet, within this turbulent landscape the secular drivers of sustainable investing remain intact.

Secular investment trends around electrification, renewable energy, digitalisation, AI, and reshoring are progressing uninterrupted

Last year, investment in the green transition reached unprecedented levels, surpassing US$2 trillion for the first time.¹ The majority of this funding was directed towards established technologies such as renewable energy, energy storage solutions, smart grids and electric vehicles (EVs).

Despite the recent stagnation of US climate initiatives, Europe and China are intensifying their clean energy and broader sustainability efforts. Global EV sales this year are forecast to grow by 25% (22 million) compared to 2024, with China accounting for almost two thirds, followed by Europe (17%).² Even in the US, EV sales are set to grow by 7% this year despite the Trump administration's withdrawal of federal support.

Meanwhile, President Trump's 'Big Beautiful Bill' will provide significant government funding, grants and tax incentives for companies investing in the US. Reshoring manufacturing and developing supply chain resilience in critical minerals are set to underpin a prolonged investment cycle, which is further fuelled by the gigantic levels of investment going towards AI infrastructure.

The large tech companies dubbed the 'Magnificent 7' are spending in excess of half a trillion dollars³ annually in the race for AI supremacy. All of this investment is resource and labour intensive and we see sustained growth in demand for power and electrification infrastructure to support it.

The role of AI in decarbonisation

These high levels of investment provoke questions about environmental sustainability. The build out of all this AI and electrification infrastructure is also carbon intensive and we are paying close attention to the fact that carbon emissions are not going in the right direction. Although we are concerned by this uptick in emissions, we are optimistic that AI will ultimately play a beneficial role in decarbonisation efforts through advancements in innovation and productivity; and we remain confident that the growing demand for energy will be met with increased investments in clean energy solutions.

At Janus Henderson we have a proprietary climate transition analysis tool, and we are maintaining close engagement dialogue with our investee companies regarding their decarbonisation pathways. Thus far, we are pleased to report that we have seen no evidence from the companies we invest in that their corporate sustainability initiatives are slowing. In fact, we see that companies worldwide keep setting net-zero targets and pouring capital into efficiency, waste reduction and supply-chain resiliency, providing durable foundations for our sustainable investment themes.

Running hot - a fiery economy ahead?

Coincident with these high levels of investment, government deficits are expected to remain large, and this is supportive of corporate profitability and asset prices. When combined with easing monetary policy, and pro-growth changes to banking regulation, we believe this is a positive backdrop for global equity markets.
Therefore, despite geopolitical uncertainties, we believe the stage is set for the global economy to run hot, and investors should be concentrating on these clear and significant investment trends which are marching ahead regardless. These trends are inherently long-term and driven by technological advancements and societal needs rather than political shifts or individual country policies.

Sustainable fundamentals

Our team continues to concentrate on companies positioned to benefit from these enduring sustainability trends. For example, we favour sectors such as industrials and information technology - areas replete with innovators solving efficiency and climate challenges. Companies within electrical equipment, professional services, software, renewables, automotive technology and infrastructure are exposed to the secular themes of electrification, digital services, AI and decarbonisation. These companies are capitalising on booming demand and are exactly the kind of "picks-and-shovels" providers enabling this digital, electric and green future that the world is transitioning towards.

We believe it is important to seek out high-quality businesses with strong free cash flow and durable growth. This discipline tempers volatility during market shocks. It echoes lessons from 2020, when companies with robust financials and sustainable moats (competitive advantage that helps protect a company's profitability) proved far more resilient.

By "staying on the right side of disruption" - i.e. investing in firms driving change rather than those at risk from it - we believe investors can better weather turbulence and capture superior growth over time. This means being incessantly forward-looking in approach. Our thesis is grounded in the principles of durability allied with innovation - as Peter Drucker, the Austrian American author and consultant who helped develop modern management theory, reminds us:

"The greatest danger in times of turbulence, is not the turbulence, it's acting with yesterday's logic."