The AI trade with ‘a lot of upside’, ‘not much downside’: Strategist
Convertible bonds are a way to play bet on AI with less risk, according to one strategist. Schroders’ head of multi-asset income Dorian Carrell said convertible bonds were an asset class “people don’t talk about enough” and were up around 15% so far this year. “We think that’s an asymmetric AI story. Very high risk-return, very high components of supply chain and AI, but you get a lot of upside with not much downside,” he told CNBC’s “Squawk Box Europe” on Monday. Convertible bonds are corporate bonds that can be converted into company shares, meaning they have the features of a regular bond but with an equity component. It has been a rollercoaster few weeks in global equities, as the push and pull between economic data, earnings and AI-fueled bubble fears played out in the markets. There has been an uptick in tech firms issuing debt, which added further pressure on the market — whether it’s healthy or not has split experts. While Carrell didn’t name specific stocks, big tech firms Alphabet , Meta and Amazon are among those that have raised debt to ramp up AI efforts. Oracle, too, has been increasingly reliant on debt to fund its AI infrastructure build; analysts have flagged its tight free cash flow as investors keep an eye on how such companies are net cash positioned. Carrell said that “Europe looks like a beacon of stability” given its 2% rates and 2% inflation “give or take,” while for AI “the picks and shovels are much cheaper in Asia, including a little bit in Japan as well.” He added: “So we think you’ve got to look elsewhere. You’ve got to broaden out by asset class, broaden out by region as well.”
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