Portfolio construction

Megatrends: Artificial intelligence disruption and opportunity

November 07, 2025 - 6 min

Associate Portfolio Consultant – Natixis Investment Managers Solutions

One of the important concepts underlying our Investment Committee’s outlook, as well as our Cyclicality vs. Inflation framework, is the idea that markets are forward discounting. The market has a view of how probable certain events are, and that view is subject to change. As information becomes available to financial markets, uncertainty turns to certainty, outcomes are repriced, and you experience return dispersion. Our Megatrends framework looks at some of the technological, societal, and geopolitical themes that could color the return environment over the next 5–10 years.

So far in 2025, returns across risk assets have been impacted by two of our megatrends themes: artificial intelligence (AI) and tariff policy. While tariff risk dominated headlines in the wake of Liberation Day, since then the more noteworthy performance stories have centered around AI. While we expect momentum to remain strong in AI, investors have the opportunity to broaden their exposure to this constantly evolving theme.

AI’s two-speed market: First movers vs. future beneficiaries

Our AI theme is separated into First Order and Second Order segments of the market. First Order consists of the early adopters of semiconductor chip manufacturing and power generation of data centers. These industries include key mega-cap growth industries such as semiconductors, interactive media and services, and system software, to name a few.

AI-related segments that we’ve deemed Second Order consist of those industries that are set to be beneficiaries of AI technology in the future. Think of an industry such as broadline retail or the farming industry that hasn’t been as involved in the early innings of AI development as a company like NVIDIA but can increase productivity once technology is widely adopted. When used correctly, these companies could experience more robust revenue growth, discover cost savings, and provide better earnings to the bottom line for investors.

As you can see in Figure 1, these two simple baskets of AI-related themes traded roughly in line with the market for the first few months of the year but have diverged more recently, giving the upper hand to this first basket. What’s the driver of this outperformance? Earnings growth. The market consistently demands strong earnings from these companies, and when it comes time for results, they deliver. This is not to say that the Second Order basket is the opposite, but that the market is rewarding the strong profitability, free cash flow, and prospects coming from the First Order hyperscalers.

Now, when you peel back exposures at the portfolio level, it’s common to see a large overweight to this First Order segment. While the momentum is likely to remain strong, allocators with a longer-term time horizon can be more thoughtful with this AI exposure going forward.

Figure 1: Excess returns vs. S&P 1500^® in %

Performance data shown represents past performance and is not a guarantee of future results.
Source: Portfolio Analysis & Consulting. FactSet as of 10/21/2025. First Order basket is an equal weight to the following industries: semiconductors, system software, interactive media & services, metals and mining, and electric utilities. Second Order basket is an equal weight to data center REITs, electronic equipment, IT services, broadline retail, and water utilities.

From innovation to widespread adoption: A multi-faceted playbook

This could mean investing in those industries that haven’t been the clear-cut winners of the AI revolution so far, including broader US technology, non-US technology, utility companies, and other raw material inputs, most of which are not priced as richly as the First Order basket. This provides multiple portfolio construction goals: maintaining exposure to US large-cap equities, reducing concentration risk, improving diversification, and gaining exposure to the next wave of AI.

US large growth strategies provide some of the highest scores to our AI theme. Using an active manager in the space often yields lower scores to the First Order basket and higher scores to the Second Order basket relative to the market-cap-weighted index (Figure 2). In other words, these strategies could potentially see a performance tailwind over the next couple of years as AI-driven efficiency gains help boost profitability of these key market segments. Considering both passive and active management offers a thoughtful approach to investing in AI as it stands today and what it may look like tomorrow.

Figure 2: Artificial intelligence scoring, large growth

Source: Portfolio Analysis & Consulting; Morningstar Direct. Data retrieved October 2025. Large-cap growth category average consists of 359 strategies in the mutual fund universe that benchmark to the Russell 1000^® Growth Index.

To better understand how your portfolio of individual strategies is exposed to the nuances of these longer-term themes such as AI, feel free to reach out to us or your Natixis sales representative, and we’d be happy to help.

CFA^® and Chartered Financial Analyst^® are registered trademarks owned by the CFA Institute.

The views and opinions (as of October 21, 2025) are the author(s) and not Natixis Investment Managers or any of its affiliates. This discussion is for educational purposes and should not be considered investment advice.

Although Natixis Investment Managers believes the information provided in this material to be reliable, including that from third-party sources, it does not guarantee the accuracy, adequacy, or completeness of such information.

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All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Investors should fully understand the risks associated with any investment prior to investing.

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