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How AI is propelling the next generation of tech titans

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The next transition 

For the past decade, financial markets have been defined by the dominance of the Magnificent 7—Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia, and Tesla. These tech giants have delivered extraordinary returns, revolutionised entire industries, and become cornerstones of global market indices. However, like all market cycles, the era of the Magnificent 7’s unrivalled leadership appears to be approaching a transition. A new group of innovative tech companies—Spotify, Airbnb, Netflix, Uber, and Shopify—is now stepping into the spotlight, armed with early adoption of artificial intelligence (AI) and positioned to benefit from an anticipated rate-cutting cycle. For investors looking beyond the established market leaders, these companies represent a compelling opportunity.

In 2023, the Magnificent 7 stocks delivered remarkable performance, generating a 75.7% gain compared to the broader S&P 500’s 24.2% increase. Their outsized influence on major indices has been profound, with these seven companies alone contributing over 60% of the S&P 500’s total returns that year. However, this heavy concentration has raised concerns about overvaluation and market dependency on a narrow group of stocks. As these tech titans mature, their ability to sustain high growth rates naturally diminishes, creating room for new market leaders to emerge.

Spotify, Airbnb, Netflix, Uber, and Shopify have already reached impressive scale, positioning themselves as strong contenders for the next wave of market leadership. Spotify, the world’s largest music streaming platform, serves over 550 million monthly active users, while Airbnb has transformed the travel industry with over seven million listings, hosting millions of guests worldwide. Netflix continues to dominate the streaming landscape with more than 238 million subscribers, and Uber’s reach extends across over 10,000 cities, completing billions of trips each year. Shopify powers the e-commerce ambitions of over 1.75 million merchants in 175 countries, enabling small businesses to thrive in the digital marketplace. These companies have not only built massive user bases and expanded their global footprints but have also shifted focus towards optimising efficiency and profitability, particularly through the strategic integration of AI technologies.

AI as a transformative force

What sets this new cohort apart is their early and extensive use of AI as a transformative force within their operations. Spotify’s AI-driven recommendations, AI DJ, and dynamic playlist generation are redefining how users discover music, keeping engagement levels consistently high. Airbnb leverages AI in personalised search algorithms, pricing optimisation, and trust measures to enhance experiences for both hosts and guests. Netflix uses AI for personalised content recommendations, optimising production decisions, and generating custom thumbnails to entice viewers. Uber employs AI to improve route optimisation, dynamic pricing, and fraud detection, boosting operational efficiency and reliability. Shopify’s AI tools power everything from automated marketing campaigns to inventory management and customer service, providing merchants with a distinct competitive edge.

The integration of AI is not merely a marketing tactic for these companies; it is a fundamental component that drives significant efficiencies. Automated processes reduce operational costs and minimise errors, while personalised experiences foster greater customer loyalty. AI’s predictive analytics allow these companies to anticipate market needs and adjust strategies in real-time. Moreover, AI enables scalability by allowing systems to manage growing demands without a proportional increase in costs, creating a robust formula for sustained growth. For example, Airbnb’s AI-powered pricing tool helps hosts maximise revenue by adjusting rates based on demand trends, while Uber’s AI-driven algorithms improve driver-passenger matching, reducing wait times and enhancing service quality. These efficiencies not only bolster the bottom line but also create superior user experiences, which drive further growth.

As global economies brace for potential interest rate cuts, this new cohort of tech companies is particularly well-positioned to benefit. Lower borrowing costs make financing expansion and technological innovation more affordable, while increased consumer spending typically accompanies rate cuts, driving demand for services such as travel, entertainment, and online shopping. Furthermore, cheaper access to capital will enable continued investment in AI and other advanced technologies, keeping these companies at the forefront of their industries. Economic stimulus from rate cuts could reignite business activities across these platforms, with Airbnb and Uber likely to see increased bookings as travel becomes more affordable, while Spotify and Netflix could enjoy higher subscription revenues. Shopify’s merchants may also experience a boost in sales volumes as consumer confidence and spending rise.

The convergence of scaled business models, AI-driven efficiencies, and supportive economic conditions positions Spotify, Airbnb, Netflix, Uber, and Shopify to assume more prominent roles in the market. As the Magnificent 7 stocks face the natural slowing of growth associated with their immense scale, these emerging leaders offer investors growth potential rooted in proven, adaptable business models. Their commitment to innovation, particularly in AI, ensures they remain ahead of industry trends. This group is not just keeping pace with technological advancements; they are setting the standards and diversifying their offerings. For instance, Spotify’s expansion into podcasts and AI DJs, and Uber’s foray into delivery services are creating new revenue streams that enhance resilience. Their ability to scale globally while adapting to local market nuances further strengthens their growth prospects.

The rise of Spotify, Airbnb, Netflix, Uber, and Shopify signifies a generational shift in the technology sector. For investors, these emerging leaders represent an exciting opportunity. Their strategic use of AI not only streamlines operations but also enriches user experiences, builds customer loyalty, and broadens market reach. As they continue to innovate and adapt, these companies could redefine market leadership in the next era of technology-driven growth. The impact of this new cohort could rival, or even surpass, the influence of the Magnificent 7, making them essential to watch for any forward-thinking investor. 

Understand common financial words and terms See our glossary
KEY RISKS

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

The Funds managed by the Global Innovation Team:

May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund. May have a concentrated portfolio, i.e. hold a limited number of investments. If one of these investments falls in value this can have a greater impact on a Fund's value than if it held a larger number of investments. May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Outside of normal conditions, may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. May be exposed to Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails. Do not guarantee a level of income.

The risks detailed above are reflective of the full range of Funds managed by the Global Innovation Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.

DISCLAIMER

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.

Storm Uru
Storm Uru Storm is co-lead fund manager of the Liontrust Global Innovation, Liontrust Global Dividend and Liontrust Global Technology funds. He has 12 years industry experience, including as a fund manager and prior to Liontrust worked at Neptune Investment Management running global funds. He holds an BBS in finance and MBS in international business from Massey University, an MBA from Oxford University and is a CFA Charterholder. He represented New Zealand in rowing at the 2008 and 2012 Olympic Games, winning bronze in London in 2012.

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