By Joel Kranc
In President Trump’s most recent address to a joint session of Congress and the Senate, he told speaker Mike Johnson to “get rid of the CHIP Act,” which he also described as a “horrible, horrible thing.” The CHIP Act (or CHIPS for America) is meant to build up the semiconductor research and manufacturing capabilities in the U.S. with federal funding. The bipartisan bill is a leftover of the Biden administration and was meant to give out $50 billion in funding, loans and guarantees.
Despite the confusion on what the tech sector might get (or not get) from the federal government to advance homegrown semiconductor facilities, the AI sector, and the need for semiconductors is not slowing down. In fact competition is heating up, which is where investors come in.
Earlier this year, Chinese-based artificial intelligence company “DeepSeek” changed the AI game with an app, at a reportedly and staggeringly low development cost of $6 million. By contrast, OpenAI, Google and others are on track to invest about $1 trillion in AI over the coming years, according to Goldman Sachs.
“DeepSeek has taken the market by storm by doing more with less,” said Giuseppe Sette, president at AI market research firm Reflexivity, in the press. “This shows that with AI the surprises will keep on coming in the next few years.” DeepSeek’s latest app came a few days after President Trump announced a $500 billion venture with ChatGPT maker OpenAI, Softbank and Oracle, dubbed Stargate, which he touted as ensuring “the future of technology” in the U.S.
Sung Cho, co-head public tech investing at Goldman Sachs and managing director has said, “If you are a bull, the most important thing here … is that right now there’s a race to see who can build the best foundational model (general purpose models that can be applied to many applications). That race isn’t going to slow down anytime soon.
“From a return on investment perspective, if you look at it over the next one or two years, maybe the ROI isn’t great. But if you have a return stream of 20 years associated with your building the best tech stack today, then certainly you could justify the investment.”
Companies’ track record is already pointing in that direction. According to the Wall Street Journal, Amazon spent $83 billion on cloud computing and data centers for AI in 2024, Alphabet spent $52.5 billion, Microsoft spent $55.6 billion and Meta spent $37.3 billion. That was last year.
What of the institutional market?
Last year, Canadian pensions remained resilient, mainly boosted by the tech sector. Canadian Equities, as measured by the S&P/TSX Composite Index, grew 3.8% for the quarter and 21.7% for the year. The IT sector led performance for the fourth quarter and full year, generating healthy double-digit returns over both periods.
Also in Canada, although it was derailed by the resignation of Prime Minister Trudeau, and has an uncertain future, the government was considering making up to C$15 billion available as an incentive to encourage major Canadian pension funds to invest in data centers for AI that are powered by green energy.
Practical investment is also taking shape. A new start-up – StackAdapt – a multi-channel programmatic advertising platform, raised $235 million in equity funding from Teachers’ Venture Growth (TVG) – the investment arm of the Ontario Teachers’ Pension Plan. The company uses AI to address challenges such as fraud prevention and data protection. Rick Prostko, senior managing director of TVG, told the press, “The company has been able to demonstrate consistent growth and profitability while building the future of advertising and marketing technology”
In the U.S. the elephant chip in the room is obviously NVIDIA. Despite its stratospheric rise, fall and renewed momentum, many institutional investors such as Black Diamond Financial and Legal & General Group Plc are increasing their stakes in the company, with an eye toward future growth. Separately, other companies are playing the long game as well.
BlackRock’s biggest overweight for 2025 is to U.S. equities to capture gains from the AI theme and broadening earnings growth.
“Valuations for AI beneficiaries are supported by tech companies delivering on earnings. Resilient growth and Fed rate cuts support sentiment.” However, risks include any long-term yield surges or escalating trade protectionism, BlackRock says in its 2025 outlook.
Matt Cioppa, portfolio manager and research analyst at Franklin Equity Group, says investors have an opportunity to participate in the early stages of a new growth cycle, where patience could be rewarded as the full impact of AI is felt.
“While we are incredibly bullish on the long-term potential of AI, experience has taught us that foundational technologies often take years to prove their full worth (consider mobile and cloud computing in the late 2000s and 2010s),” he said in a 2025 outlook.
“The foundation for AI value creation remains in development,” he added. “However, the progress we saw last year leads us to anticipate faster adoption of AI-driven applications both at work and at home in 2025, potentially contributing to an improving growth trajectory for industries like software and consumer internet. We expect the 2025 “AI beneficiary” basket to be much broader than what we experienced in 2024.”
As investors consider where their money is best spent and look globally at opportunities, China, of course, is a major competitor to be considered. According to Analytics Insight, “The US still has the best minds and dominates several high-impact areas of AI. Both nations are advancing the frontier of AI, and although they are competing, they could complement each other in some sectors.”
That, however, is still a future consideration as investors still look domestically for opportunity and growth. By all accounts, investment on many fronts is already occurring (by large investors and by the companies themselves) and giving investors food for thought on their tech portfolio investments.
