Edouard Carmignac's letter

Dear investors,

Equity markets seem to be defying gravity. Tariff tensions, conflicts in the Middle East and Ukraine, and uncertainty surrounding the political situation in France have not slowed the steady rise of stock markets as volatility has subsided.

True, the backdrop is favourable and likely to remain so. In addition to the continuation of fairly accommodative fiscal policies, interest rates are falling worldwide, facilitated by easing inflationary pressures. However, these auspicious conditions alone cannot justify the surge in valuations.

In our view, the explanation lies in the tremendous technological acceleration we are witnessing. Never in the history of humanity has so much progress been within our reach. Following the internet revolution of the 1990s, which enabled the unlimited and immediate dissemination of knowledge, Augmented Intelligence – incorrectly designated “artificial” – will enable us to progress at a pace we cannot yet imagine, in areas the scope of which we cannot yet measure. AI is already freeing us from time-consuming tasks such as compiling data and writing routine correspondence. In this respect, it is a major factor in improving productivity and stimulating creativity. What is more, it has become a valuable driver of research in both physics and biotechnology, with even Nobel Prize winners among its users. Life expectancy of 120-150 years, which might have seemed like a pipe dream a decade ago, now seems plausible. The development of fusion technology, in the works for more than 50 years, will enable the proliferation of cheap energy. This could take place before 2035, instead of the expected deadline of 2050. And in the field of defence, AI makes it possible to engage in combat using swarms of advanced drones and to envisage fighter planes without human pilots.

It would be futile to attempt to predict the scope of the revolution underway. What is certain, however, is that its implementation is accelerating, made possible by the explosion of data centres around the world. Admittedly, valuing AI stocks is a delicate matter and prone to temporary excessive enthusiasm. But we are only at the beginning of a major technological take-off that we must anticipate and analyse as best we can. For investors, this involves identifying the winners and losers of this global upheaval.

Compared to this paradigm-shift, political games appear trivial. The exchanges between Donald Trump and Xi Jinping are reminiscent of the French children's game of ‘chin-and-cheek’, where both player hold the other's chin in an attempt to make their opponent blink first. In the battle between the US and China, one holds the key asset of high-end semiconductors and the other, rare earths that are essential for the development of technological products. They are doomed to settle. As for the pitiful French political pantomime, it overlooks the powerful wake-up call markets will sooner or later provide.

Warmest regards,