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As artificial intelligence (AI) enthusiasm lifts markets across sectors, not all valuation gains are the same. Sr. Director, Client Relations Kevin G. Murphy, CFA, and Portfolio Manager and Sr. Research Analyst Daniel Pilling discuss how investors can distinguish between companies merely benefiting from the AI tide and those with true staying power.
Transcript
Kevin Murphy: In talking about the economics of AI, let’s touch on valuations. It feels like there’s a push and pull in the markets. It’s a rising-tide phenomenon where a lot of businesses, whether they truly deserve it or not, are getting a valuation boost from AI.
Daniel Pilling: If I take the semiconductor universe, companies trade anywhere from 15 to 25 times earnings for calendar 2026. Hyperscalers aren’t far off—closer to the higher end. Google’s a bit below, Microsoft a bit above, Amazon near the top.
One could argue these valuations don’t reflect certain possibilities. If humanoids suddenly become widespread and we manufacture tens of millions a year, that’s massively impactful for semiconductor content—much more than an iPhone.
We tried to do the math roughly—humanoids could be a much bigger revenue driver for Taiwan Semiconductor than the iPhone, which is currently their biggest customer. Add self-driving vehicles to that—also a large market with high silicon content.
It’s hard to know exactly when that happens, so the market struggles to price it in. The topics are widely discussed, but not necessarily reflected in current valuations.
For us, the good news is we can focus on the companies that truly deserve the rising tide—those with real competitive advantages that will monetize these trends. We don’t know precisely when, but likely within the next five years. And when that certainty comes, hopefully today’s valuations will rise accordingly.
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Unless otherwise noted, the companies identified represent a subset of current holdings in Sands Capital portfolios and were selected on an objective basis to reflect holdings enabling or potentially benefitting from the adoption of generative artificial intelligence.
As of June 20, 2025, Sands Capital strategies hold positions in Amazon, Microsoft, and Taiwan Semiconductor.
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