Growth & Innovation 2025 Outlook
Year Three of Decade Long AI Investment Cycle
Growth stock momentum and risk-on sentiment across global markets persisted in 2024. Tech names outperformed, as did Bitcoin (BTC), which saw a strong rally to all-time highs in part due to the US election outcome. Improved liquidity and easing financial conditions have led to multiple expansion across the market, with the S&P 500 now trading at a forward P/E of ~22x, close to its 2021 highs.
With macroeconomic conditions improving, growth rates have improved and the environment to raise capital is showing signs of life, after enduring a multi-year period of capital austerity. We think that AI remains the key theme across tech. It is powering positive sentiment, and enormous levels of investment across the US economy, given its capital-intense nature. We believe the secular growth stories and high-quality business models in software, which have taken a back seat to the AI story, will endure, as they incorporate AI into their solutions. A number of names in our coverage universe look attractive when comparing the medium-term growth outlook to valuation. Our top picks for 2024 are GLXY, BITF and SFTC.
Key Themes:
AI Remains the Main Tech Theme In 2024
The AI theme remained the key theme across the tech landscape in 2024, as mega-cap names, venture stage AI companies, software, companies, infrastructure companies and BTC companies all continued to invest in expanding their HPC/AI capabilities. In our view, 2024 revealed the need for power to run HPC applications. We believe Hyperscaler’s pipelines need data centre infrastructure, and access to power which is being supplied by utilities and (now) BTC miners.
We Think AI Will Continue To Be At The Forefront In 2025
We think that AI will continue to be the leading theme in tech in 2025, and investments into power and data centre capacity from leading AI names will continue. Government entities around the world also could increase investments in the development of AI, adding to the supply/demand imbalance. Related to our coverage, we think that increasing demand for power and data centre capacity acts as a tailwind for BTC miners like Bitfarms, alongside Galaxy, all of which are in the midst of pursuing data centre build-outs.
More Upside For Crypto
We think that the rally in crypto, which began in early 2023 and accelerated post-election, has room to run in 2025. Key to our thesis remains that BTC is a superior store of value to gold, yet at a ~$2tn market cap, still remains well below gold’s ~$17tn market cap. Shorter-term, despite the strong rally in recent weeks, on-chain metrics such as the MVRV-Z score and retail search interests indicate that the market is not “overheated”. We expect announcements from institutional investors deploying capital into digital assets to validate the asset class in 2025.
Fintech Momentum To Continue
Fintech stocks have been a beneficiary of President Elect Trump’s victory. The Global X FinTech ETF (FINX) is up ~10% since the election, outperforming the S&P 500, which is up ~2% over the time frame. We believe the market has started to price in a more favourable regulatory environment. The removal of regulatory overhang from the incoming Trump administration provides a positive backdrop for Fintech outperformance in 2025.