Artificial intelligence has moved from promise to deployment at extraordinary speed. For us, AI is not simply another product cycle. In our view, it is the next general-purpose technology and a rare example of discontinuous change (such as the advent of the internet) that will reshape industries globally.
Just over three years from the launch of ChatGPT, the debate has evolved. The initial phase of the AI trade was dominated by a narrow group of mega-cap stocks. More recently, leadership has broadened as investors begin to question not whether AI will matter, but where value will ultimately accrue. We believe 2026 is likely to be the year when AI’s impact becomes impossible to ignore.
The next phase of technological progress
We view today’s environment as the transition from providing information to producing intelligence, moving from value being created by accessing and organising data to creating value by synthesising, reasoning and acting on that data.
This shift has profound implications. As AI models improve, they are moving from complementary tools to credible substitutes for parts of the traditional software stack. Coding is becoming commoditised, barriers to entry in software are falling and outcome-based pricing may increasingly replace seat-based subscription models. Data services businesses, long prized for proprietary datasets, face new competition from increasingly capable models able to approximate insights from vast pools of unstructured information.
We also believe that companies owning or controlling frontier AI models are better positioned to shape their own destiny.
For investors, this means AI creates both opportunity and disruption. Not all AI beneficiaries are equal. Some incumbents may be forced into defensive investment simply to protect their franchise. Others may find their competitive moats eroded faster than expected.
The opportunity set
Against this backdrop, we remain AI maximalists. Demand for AI infrastructure continues to outpace supply despite material capital expenditure and we believe we are still in the early phases of a multi-year investment cycle. History suggests major infrastructure buildouts can last many years which means we are only part way through this one.
We see compelling opportunities across the broader enablers of the AI ecosystem: semiconductors, networking, memory, power and data centre infrastructure. These businesses benefit from contracted demand, supply constraints and rising workloads as model capability improves. In our view, they are the backbone of the AI economy.
We also believe that companies owning or controlling frontier AI models are better positioned to shape their own destiny. In contrast, businesses reliant on third-party models risk becoming ’passengers’ in the next phase of AI progress. This distinction is central to our stock selection framework.
Importantly, the broadening of market participation since 2024 has created a richer hunting ground for active managers. With leadership no longer confined to a handful of mega-caps, we believe bottom-up research and dynamic allocation are increasingly valuable.
Acknowledging the risks
We do not dismiss the risks. Capital intensity is rising and markets are becoming more focused on returns on AI investment. Companies unable to demonstrate credible monetisation may be punished. There are also clear pockets of excess in private markets and volatility is likely to remain a feature of this cycle.
Technological disruption rarely proceeds in a straight line. Incumbent software and information services companies may face uncomfortable transitions as business models adapt. Geopolitics, supply chain constraints and regulatory scrutiny add further uncertainty.
The portfolio is deliberately diversified across the enablers and beneficiaries of this transformation, with a strong emphasis on infrastructure and companies with durable competitive advantages in an AI-centric world.
It is important to remember that volatility is a normal feature of new technology cycles. Between 1995 and 1998 – the early years of the internet infrastructure buildout but before the dot.com bubble – the NASDAQ gained 354%. However, this strong period was punctuated by seven corrections of greater than 15% during the period. We believe the current backdrop remains highly reminiscent of the mid- rather than late 1990s.
However, scepticism itself can be healthy. Unlike previous speculative episodes, we do not believe we are in a classic bubble. In our assessment, share price performance to date has largely reflected improving fundamentals and earnings expectations rather than indiscriminate multiple expansion.
Our positioning
The Polar Capital Technology Trust is positioned to capture what we believe is a structural, multi-year transformation. The portfolio is deliberately diversified across the enablers and beneficiaries of this transformation, with a strong emphasis on infrastructure and companies with durable competitive advantages in an AI-centric world.
We have been reducing exposure to areas where we see rising disruption risk, particularly parts of traditional application software, and reallocating capital towards businesses more directly leveraged to AI adoption and capital expenditure. Our global remit allows us to exploit regional divergences and mitigate concentration risk.
We believe that we are witnessing the early stages of a general-purpose technology reshaping the global economy. Disciplined, research-led exposure to its enablers and durable beneficiaries remains, in our view, one of the most compelling long-term opportunities in global equities today.
