From Capex to Conviction: Investing Through Disruption and Opportunity

Key takeaways 

• AI is a transformational technology: Artificial intelligence is a groundbreaking technology that is having a pervasive impact on sectors, companies and consumers.
• The shift from build-out to adoption: The AI industry is transitioning from the development phase to a critical adoption cycle, which requires a focus on new growth dynamics and future opportunities.
• Tech valuations are likely not in a bubble: We are witnessing significant revenue acceleration across the AI ecosystem supported by early evidence of progress as industries shift from experimentation to real-world adoption and seeing tangible returns.
• An optimistic outlook that still requires vigilance: While there is long-term optimism about AI’s growth and potential, it is essential to monitor rapid technological changes, market dynamics, and potential risks (e.g., debt financing), while leveraging global research to stay informed.

The shift to a new AI-driven technology platform is transforming the investment landscape through substantial capital expenditures and driving cross-sector implications. In the latest episode of the All Angles podcast, Equity Portfolio Manager Brad Mak shares insights on how the AI revolution could impact the future of growth companies, whether tech valuations are in a bubble, and what 2026 has in store.

AI is a transformational technology 

Artificial intelligence is not just another tech trend; it’s a fundamental platform shift impacting the entire economy. Incumbent mega-cap companies are investing heavily to defend and expand their profit pools, while a new wave of AI-focused firms is emerging. Importantly, the ripple effects of AI extend well beyond the technology sector, influencing industries such as energy and capital goods. For example, increased demand for data centers is driving renewed growth in energy and infrastructure, transforming these previously low-growth sectors.

Practical Application:
Broaden the growth opportunity set by searching for beneficiaries of AI-driven capital expenditures beyond pure tech companies, such as in sectors like energy or capital goods. Develop a cross-sector perspective to identify resilient opportunities, with durable revenue drivers, as tech giants create downstream opportunities in supply chains, infrastructure and services.

The shift from build-out to adoption 

We are at a pivotal moment: the initial “build-out” phase, marked by massive capital expenditures from hyperscalers and supply chain participants, is transitioning to a phase focused on AI adoption and usage. While the build-out phase is expected to last another two to four years, attention is shifting to companies poised to benefit from widespread AI adoption, such as those introducing premium subscriptions or embedding commerce directly into AI-powered applications. Adoption of AI is not just a tech story; it’s a catalyst for efficiency across sectors, from health care to industrials.

Practical Application: 
Anticipate the next wave of companies that will benefit as AI moves from infrastructure build-out to mainstream adoption, such as firms enabling new business models and those leveraging AI to enhance productivity or reduce costs. Identifying firms positioned to monetize these innovations and tracking enterprise and consumer adoption rates will signal which companies are best positioned for durable growth.

Tech valuations are likely not in a bubble 

While tech valuations are elevated, their price-to-earnings ratios are not close to the levels seen in previous tech cycles or other industries. The key debate revolves around whether this growing AI investment will translate into durable revenues and profits. While there is no definitive answer yet, we are seeing significant revenue acceleration across the AI ecosystem, as well as further signs of progress as industries like health care, legal and financial services move from experimenting with AI to actively using it and seeing tangible returns. Bottlenecks such as labor shortages and component supply constraints are likely to extend the AI capex cycle, providing greater visibility for investors. However, risks remain, particularly if demand slows or if there is a mismatch between spending and realized revenues.

Practical Application:
Focus on duration and resilience by prioritizing companies with clear, long-term demand drivers, strong balance sheets, and proven leadership, and assess exposure to potential bottlenecks and overcapacity risks. Prepare for multiple outcomes through scenario and pre-mortem analyses (including demand-side slowdowns or supply gluts), stress-test portfolio assumptions, and ensure robust risk management.

An optimistic outlook that still requires vigilance 

The outlook for AI and tech-driven growth remains optimistic, but vigilance is warranted. Circular financing among large tech players and the rise of complex debt structures require careful monitoring. While current debt levels are not excessive, the investment team is closely tracking leverage, demand, and the availability of financing. Collaboration across equity and fixed income teams is critical for a comprehensive view of risks and opportunities.

Practical Application: 
Stay alert to changes in financing patterns, especially vendor and debt financing in the tech ecosystem. Foster collaboration between equity and fixed income as well as cross-sector analysts to gain a holistic understanding of market developments and potential vulnerabilities.

Conclusion 

Growth is evolving, and AI is a catalyst. Success requires a disciplined, long-term approach that is open to change, grounded in rigorous analysis, and attentive to both opportunities and risks across sectors. By broadening the search for growth, anticipating shifts from build-out to adoption, maintaining perspective on valuations, and staying vigilant about financing and risk, investors can build resilient portfolios and capture opportunities that will define the next decade. 

The views expressed in this are those of MFS, and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any MFS investment product.

Distributed by: U.S. – MFS Institutional Advisors, Inc. (“MFSI”), MFS Investment Management and MFS Fund Distributors, Inc., Member SIPC; Latin America – MFS International Ltd.; Canada – MFS Investment Management Canada Limited.; Note to UK and Switzerland readers: Issued in the UK and Switzerland by MFS International (U.K.) Limited (“MIL UK”), a private limited company registered in England and Wales with the company number 03062718, and authorised and regulated in the conduct of investment business by the UK Financial Conduct Authority. MIL UK, an indirect subsidiary of MFS^® , has its registered office at One Carter Lane, London, EC4V 5ER.; Note to Europe (ex UK and Switzerland) readers: Issued in Europe by MFS Investment Management (Lux) S.à r.l. (MFS Lux) – authorized under Luxembourg law as a management company for Funds domiciled in Luxembourg and which both provide products and investment services to institutional investors and is registered office is at S.a r.l. 4 Rue Albert Borschette, Luxembourg L-1246. Tel: 352 2826 12800. This material shall not be circulated or distributed to any person other than to professional investors (as permitted by local regulations) and should not be relied upon or distributed to persons where such reliance or distribution would be contrary to local regulation; Singapore – MFS International Singapore Pte. Ltd. (CRN 201228809M); Australia/New Zealand - MFS International Australia Pty Ltd (“MFS Australia”) (ABN 68 607 579 537) holds an Australian financial services licence number 485343. MFS Australia is regulated by the Australian Securities and Investments Commission.; Hong Kong - MFS International (Hong Kong) Limited (“MIL HK”), a private limited company licensed and regulated by the Hong Kong Securities and Futures Commission (the “SFC”). MIL HK is approved to engage in dealing in securities and asset management regulated activities and may provide certain investment services to “professional investors” as defined in the Securities and Futures Ordinance (“SFO”).; For Professional Investors in China – MFS Financial Management Consulting (Shanghai) Co., Ltd. 2801-12, 28th Floor, 100 Century Avenue, Shanghai World Financial Center, Shanghai Pilot Free Trade Zone, 200120, China, a Chinese limited liability company registered to provide financial management consulting services.; Japan - MFS Investment Management K.K., is registered as a Financial Instruments Business Operator, Kanto Local Finance Bureau (FIBO) No.312, a member of the Investment Trust Association, Japan and the Japan Investment Advisers Association. As fees to be borne by investors vary depending upon circumstances such as products, services, investment period and market conditions, the total amount nor the calculation methods cannot be disclosed in advance. All investments involve risks, including market fluctuation and investors may lose the principal amount invested. Investors should obtain and read the prospectus and/or document set forth in Article 37-3 of Financial Instruments and Exchange Act carefully before making the investments. For readers in Saudi Arabia, Kuwait, Oman, and UAE (excluding the DIFC and ADGM). In Qatar strictly for sophisticated investors and high net worth individuals only. In Bahrain, for sophisticated institutions only: The information contained in this document is intended strictly for professional investors. The information contained in this document, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure that the information contained in this document is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this document (or any part of it) with the consent of MFS international U.K. Ltd (“MIL UK”). The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public. The information contained in this document, may contain statements that are not purely historical in nature but are “forward-looking statements”. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorised financial adviser. Please note that any materials sent by the issuer (MIL UK) have been sent electronically from offshore. South Africa - This document, and the information contained is not intended and does not constitute, a public offer of securities in South Africa and accordingly should not be construed as such. This document is not for general circulation to the public in South Africa. This document has not been approved by the Financial Sector Conduct Authority and neither MFS International (U.K.) Limited nor its funds are registered for public sale in South Africa.