Much will change and writing ahead of President elect Trump’s inauguration on January 20th will no doubt provide additional insight to broad topics, but we are in for an exciting time. U.S domestic and international policy, tariffs, inflation (still), economic growth, interest rates, debt, AI use cases, competition and the long-awaited increase in primary issuance presenting new opportunity are in the investment hopper.
Farewell 2024, you were challenging. Sometimes predictable, selectively loose but you were interesting. The year shot by and we now barrel into 2025 with exciting change ahead including the inauguration of President Trump who will surely delight and confound, and not necessarily equally. Will Trump 2.0 present triumph or turmoil? Artificial intelligence (AI) and more specifically General AI and its deployment will spawn countless new companies and business models (many of which will fail) and the promise to usher in a new era of efficiency and innovation. Crypto currency appears to have the best ally in its corner, will this be Bitcoin’s coming of age or is the rise since the U.S. Presidential Election overdone?
Will 2025 be the year of innovation in personalised healthcare, mobility, robotics and energy efficiency? The answer is both ‘yes and no’, and the timelines may be longer than the news headlines suggest but, what is certain is the answer is not maybe anymore. Google’s stunning advancement in its quantum chip, named Willow, suggests a leap forward in computing power that will blow complex problems that cannot be solved by traditional computing wide open. The shiny box may not be immediately around the corner (or the next) and the science in probabilistic computing gives rise to complexities, such as error correction, that needs solving but the prize of success is enormous. Whether it be the analysis of molecular interaction leading to personalised medicine and accelerated compound discovery or optimising metallurgical combinations to improve batteries or discover new materials through to forming the bedrock of AI efficiency with real-time data analysis or the identification of precursors leading to diabetes, 13 years early, dramatic change is afoot.
For 2025, the world is poised for a fascinating interplay of innovation, policy shift and economic recalibration. In the U.S. Donald Trump takes office in under a week and the flow of ink, signing into law his Executive Orders, has the potential to spawn seismic policy shifts and still further through policy under a Republican-led government that sees both the House and Senate united. The clock will be ticking given the mid-term elections in November 2026 but one should not expect all proposals to be imminent or passed. Congress does not work like that.
Regardless of one’s personal preferences, the Trump administration has the potential to affect all corners of the globe, it cannot be ignored.
U.S. Government funding remains an issue
One of the events worth watching is the ongoing trial surrounding the ability of the U.S. government to cash cheques to provide for social services as well as pay its employees. Previously the U.S. Government had experienced shutdowns due to budgetary disputes but never directly because the debt ceiling was reached. Historically, Wall Street has typically shrugged its collective shoulders and looked for other things to focus on given the wisdom has always been that a deal will be reached at the 11th hour. Afterall, no politician wants to see public services, law enforcement, social security and all manner or other government endeavour grind to a halt. It would not play well, and international capital markets would not respond favourably.
With the government funded through March 14th, the next act is not too far away, and I raise it for consideration again now because there is a new team in town and that team is not harmonious. Trump has amassed an impressive group of elected and unelected individuals that will spearhead his policies. A powerful and unelected contingent resides in both Elon Musk and Vivek Ramaswamy, who jointly head up the Department of Government Efficiency (DOGE) and with the former, Elon, at least as famous as Trump, fiercely intelligent and singularly driven to succeed. DOGE has a stated goal of reducing government largess to the tune of US$ 2 trillion (approximately 8x New Zealand GDP) and as a result, government spending, budgets and the debt ceiling are a focus.
With a shutdown looming, the originally proposed 1,547-page bipartisan bill put forward by House Speaker Mike Johnson was comprehensively rejected and subsequently stripped-down to 118 pages before it was passed despite excluding Trump’s preference to have an amendment to the debt ceiling included. Musk was vociferous in his opposition whipping up outrage toward the bill through a torrent of social media posts on X, attacking the legislation for what he described as excessive spending. “Stop the steal of your tax dollars!” Musk wrote whilst dangling primary challenges against anyone who voted for the budget deal, a threat Trump later echoed in a post of his own. This damaged the Speaker and although he survived the re-election vote – Trump used some political capital aggressively backing him –it suggests that Elon carries a significant amount of power to affect the political path.
The question here is how that plays out with Donald Trump. Both have big ego’s and whilst they are currently enjoying the others warm aura, one must question whether the embrace will last and whether there is room for both? Donald Trump is not a sentimental fish and is ruthless in exerting control, but should their relationship end on the rocks, is Elon easy to de-emphasise and with limited fallout? Is the Vice President elect, J.D. Vance happy in the shadows?
The debt ceiling debate and ongoing government funding may come and go with agreement at the 11th hour for years to come but what if it fails? Capital markets will be set for a rough time and the political fallout and tug of war within ‘Team Trump’ may be severely tested resulting in casualties.
One of the first tasks of any year is for asset allocators to ensure that capital is deployed correctly. Asset Allocation is the principal driver of investment returns, and the debate surrounding capital allocation is being mulled with gusto at both a portfolio and index level. The weighting to the United States has hit an all-time high with investment returns fuelled by (in part) the simple belief that the new Administration will be positive for U.S. centric business.
The current weighting to the U.S. is almost 75% and well above the 1970’s era of the Nifty-50 that continued for many years and with it, there is a debate around its sustainability. If you believe in mean reversion or the Shiller PE then one has every right to be concerned but it remains a fact that John Maynard Keynes’ famous quote, “Markets can remain irrational longer than you can remain solvent,” may remain true despite two consecutive years of greater than 20% gains.
Whether or not this will be repeated in 2025 remains to be seen especially since most of the performance came from a handful of companies, but it is clear the U.S. is in the early and golden stages of innovation, and it is right to be to looking at robot related investment alongside that of the past and present AI and Data Centre strategy. Private companies are being formed at a phenomenal rate and the magnificent seven ‘machine’ is generating near limitless amounts of capital with which to invest and drive competitive advantage. Whilst it is an oversimplification, outside of the U.S. there appears to be a disharmonious approach to the next industrial revolution of AI. Money is required to generate a return, and it will always be deployed in a way to maximise the opportunity, and this does not lend itself well to legacy business. For example, once the powerhouse of the German economy, the auto manufacturing business is struggling in the face of Chinese competition and the Stoxx Europe 600 (Stoxx) has only 7% exposure to technology-oriented companies. Of course, lower growth is cheaper and the Stoxx is trading at approximately 15x or almost half that of the U.S., but the valuation difference may remain and at a stretch be structural.
Higher growth does not necessarily mean the performance discrepancy continues, there are many more factors at play than just AI related exuberance, but protective practises (semiconductor and IP) alongside a tariff war may well tilt the scales.
I, Robot – the ingredients
Hollywood has provided its fair share of films portraying a dystopian future where robots subjugate their human creators, the result of a heady mix of robotic awareness, programming overrides and the inevitable conclusion that humankind needs cleansing. Whether it be Terminator (1984) or the theme park of Westworld (1973) we are both fascinated and wary of the coming of the ‘non-organics’. The Matrix (1999) envisages a future where humankind is enslaved to provide power to an AI programme of order and rational thinking, whilst Robby the Robot in The Forbidden Planet (1956) acted as a servant in a storyline loosely based on The Tempest – the plots and the sheer number of them is mind boggling.
The future of robots is rapidly evolving, with key industry leaders focusing on humanoid robots as the next major technological advancement. Elon Musk, CEO of Tesla, has stated that robots, and not cars, are the strategic direction for Tesla. He envisions producing millions of Optimus humanoid robots, which he believes will be Tesla’s biggest selling product – ever. Forget cars! ‘One in every household’ will be the tagline.
The ‘secret sauce’ of robots is not the chassis, but what makes it function, and this will ultimately be the unison, the emulsion perhaps, of hardware and software, the robotic stack. Whilst the ‘it is here’ day is in the future, identifying those at the forefront of the technology now may prove to be the long-term winners. Pure plays are rare, and they are private, but it may be possible to gain exposure through select listed companies even if as a second or third derivative. I am not suggesting Tesla will scoop the robot Oscar, but Musk has proven his foresight can be honed and be a force to be reckoned with. Optimus is created in our own image which makes sense given we built the world around our form factor over decades. Ultimately, the path of least resistance may reside in a humanoid design and functionality and not in a radically redesigned world. That would be supremely expensive, and prohibitively slow.
One of the more interesting developments in the last few weeks has been a meeting between Elon Musk and Taiwan Semiconductor’s Chairman, CC Wei to discuss the supply of semiconductors (GPUs) to xAI – the AI company Musk founded in 2023 to rival the Sam Altman led ChatGPT. There is interesting ‘history’ there with no love lost and xAI has built a cluster – called Colossus – totalling 100,000 GPUs. This is an engineering feat and made even more miraculous given it was achieved in only 122 days. Wow! But this is just the start with Colossus anticipated to reach 1million+ GPUs. Supply is needed, as it will for be for Optimus and Elon has been speaking to the leading provider of choice.
The robot emulsion consists of hardware and software with hardware size and power an issue, or is it?
In a somewhat comically theatrical video Jensen Huang, the CEO of Nvidia pulled a brand new and upgraded Jetson Orin Nano Super out of his oven in a Blue Peter ‘here is one I made earlier’ moment. The Nano could represent the pivotal moment in AI accessibility and robotics development. Drawing only 25 watts, able to perform almost 70 trillion operations per second and at only US$ 249 it democratises AI development. The Jetson is particularly noteworthy for its ability to run sophisticated AI applications ‘locally’ and Huang explicitly highlights its suitability for running domestic consumer robots! This is not quite the ‘ta-da’ rabbit out of the hat moment but it is a huge step in the right direction. Huang is clearly positioning Nvidia as the AI and robot centric junggernaught.
Amazon has been working with Nvidia for years and Nvidia has unveiled a device that symbolises the company as a key enabler to accelerate robotic innovation at a consumer level. To complete the circle, Nvidia has committed US$ 1billion in the xAI capital raise. AI and powerful yet small compute is coming together and rapidly. Whether we want it or not, the era of the Robot is coming! Are Amazon, Nvidia and Tesla the three new upstarts, the breakaway mob and the ones to watch as their collaboration pursues the robotic future?
Time to make sure Isaac Asimov’s three laws are right!
There will be a lot of water to flow under the bridge over this and the next four years of Trump 2.0 and we will learn more in the days and months ahead on how the promises made take shape. Taking a long-term view and adapting to change will be the key to success.
Pooh sticks anyone!
Note: PG Investments does not actively invest in nuclear energy assets.
Tim Chesterfield is the long-time CIO of the Perpetual Guardian Group and the founding CIO and Director of its investment management business, PG Investments. With $2.8 billion in funds under management and $8 billion in total assets under management, Perpetual Guardian Group is a leading financial services provider to New Zealanders.
Perpetual Guardian Group acquired boutique fund manager Castle Point in 2024, which now forms part of the Group’s investment management suite of businesses.
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Information provided in this publication is not personalised and does not take into account the particular financial situation, needs or goals of any person. Professional investment advice should be taken before making an investment. The information provided in this article is not a recommendation to buy, sell, or hold any of the companies mentioned. PG Investments is not responsible for, and expressly disclaims all liability for, damages of any kind arising out of use, reference to, or reliance on any information contained within this article, and no guarantee is given that the information provided in this article is correct, complete, and up to date.
This article was originally published by the NBR. You can read the original piece here.
