Where to Invest $1 Million Right Now
Four investment experts see intriguing opportunities in niche, next-generation AI plays, emerging markets and defense.
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It’s hard to know where to turn in the investment world these days.
After a broad risk-off rout in the markets less than two months ago, the Nasdaq 100 has been on a tear since March 30, up almost 29%, while the S&P 500 has risen about 18%. A blowout earnings season has supported stocks in recent weeks, as momentum is fueled by expectations for continued, enormous capital expenditures around artificial intelligence.
Even a war and the risk that higher oil prices will slow growth and accelerate inflation haven’t done much to dent the rally. That doesn’t mean there isn’t some profit-taking and some fear. With AI spending driving GDP growth, there’s concern that the broad economy is singularly vulnerable to the sector. Some market-watchers say that a melt-up may be underway, with Michael Burry — the investor made famous by the movie The Big Short — writing on May 11 that the market resembles the peak of the dot-com bubble, just before it burst.
When Bloomberg asked four investments experts where they see the most intriguing investment opportunities in this volatile market, AI was on the agenda for some, but not the usual mega-cap players. Instead, the next generation of AI “picks and shovels” companies got a nod, along with a call for “aggressive diversification” and a focus on smaller-capitalization stocks, emerging markets, energy infrastructure and modern defense companies.
When wealth advisers were asked how they’d spend $1 million on a personal passion, answers ranged from creating a travel fund to take friends and family on vacation to scooping up cases of Bordeaux wine and creating a buffalo refuge in Montana.
Read more: How to Maximize a Roth IRA — And Retire Rich
Vivian Lubrano, global equities portfolio manager, Ariel Investments
Focus on Niche Next-Gen AI Plays
The idea: Today, I’d be looking at the AI picks and shovels, particularly the broadening out of picks-and-shovels plays. We’re still too early to know what the economics of AI will be and who will be the ultimate winner. We do know there is a lot of spending going into the infrastructure. We know the obvious winners that have done very well, but what we’re looking for are the next infrastructure winners — our analyst spends a lot of time thinking about where the next dollar in infrastructure is going. We are finding opportunities in niche-y portions of the semiconductor value chain. The chips are getting smaller and smaller, and the quality of the products needs to get purer, better, more premium. The number of companies that can be suppliers at the high end is narrowing down.
The strategy:
For example, the next generation of Nvidia chips coming out in 2027 is going to require that data centers run on 800-volt DC architecture. That is a much higher-voltage power set, so requires a very specialized power control. So we’re looking at companies that specialize in controlling that high voltage. One company is Infineon Technologies, a German-listed company. We’re also looking at two Chinese companies, Hongfa Technology and Xiamen Faratronic.
The next-gen chips will pack billions of microscopic electrical components into a tiny space requiring very pure silicon to ensure electricity flow is not disturbed. There’s a Japanese company, Sumco, that makes the cleanest, purest wafers. It’s very difficult to manufacture precise, perfectly flat wafers with the right consistency — everything gets harder with a density of components and higher electrical needs per wafer. Sumco is one of the few companies that can provide these wafers.
Another example ties into how the chips will require more memory. We already have a memory shortage, so we will have to invest in more memory capex. We all know ASML, Lam Research — they make the big equipment. But within these clean rooms, you need these very specific little conveyor belts that move the wafer around. There is a Japanese company, Daifuku, that makes this equipment. That’s what gets us excited — to make all of these things, yes, you need the ASMLs, but you also need these highly specialized companies, which are oligopolies because it’s very niche. We think there’s a lot of earnings capacity, a lot of earnings power that is underappreciated. Part of that is because we had this chip boom post-Covid and a lot of companies invested in the supply chain. So they have capacity to grow into and you are going to get operating leverage. Margins improve, revenue improves and they are moving to this premium mix.
The big picture: We pick stocks bottom-up. Whenever we can have the opportunity to invest in something less dependent on interest rates and macro growth, like AI picks and shovels, we will do that. All the next-gen products, which are expected to launch at the end of this year and in 2027, will need these products, so the visibility into orders will start coming in the next six to 12 months. What we like about these niche players is that there is a lot of uncertainty about spending on the margin, but we know there will be spending on these next generations. And it’s much more resilient to what is going on economically and globally, because there is a bit of an arms race now to understand this next generation and what it can do.
Brian Levitt, chief global market strategist, Invesco
Look to US Smaller-Caps, Emerging Markets
The idea: I want to be exposed to markets where valuations are more attractive and I want to be in parts of the market that will benefit from productivity gains and AI enhancements. That brings me to smaller-capitalization stocks in the US and to the emerging markets. We have a nice entry point in that they’re both part of a story about an uplift in global economic activity. I understand we’re seeing high gas prices nationally, but I’d characterize this as a short-lived slowdown in the economy.
The strategy:
A lot of investors have been underexposed to these investments. That’s largely because we’ve been in a relatively slow-growth world. When that’s the case, there’s no real catalyst for valuations to be unlocked or for new growth opportunities to get access to capital. What’s happening now is around productivity gains likely to come from AI and a new growth trajectory. I think people are underestimating that. When I start thinking about improving productivity and growth and the ability of businesses to do more with less and unlock value, that drives me toward lower-capitalization companies that just may not need to make the same type of investments they had to in the past to drive growth and efficiencies.
That also takes me to emerging-markets economies, where we’ve always known the demographics are better. Since economic activity is labor-force growth plus productivity, the EM economies have this opportunity for outsized growth as a result of both of those waves. The developed world can also benefit, and we will, but in places starting out from an earlier point in a trajectory, the potential to see substantial gains is very interesting. When you think of parts of the world like Southeast Asia or Africa, there’s always been this potential for outsized growth, for productivity enhancements and the rise of investable businesses. What AI starts to do is help to really speed up that process.
Whether in EM or in small caps, the tech sector will continue to be a big driver. I’m very intrigued by healthcare. The opportunities are going to be significant in what we’ll be able to unlock to treat disease. A lot of small businesses are going to be on the front lines of that. Within EM, sectors like financials, industrials and logistics are going to be very well-served by AI-driven productivity. When people look at the US large-cap index, chips, memory, software and all of that could do fine. But when you look at EM and at smaller-cap companies, these are parts of the market that can take advantage.
The big picture: We’re still in the middle of this business cycle that started in 2020. There is little in the market to suggest that it is ending. Businesses and households tend to be on a good footing and there’s not a lot of excess in the global economy. Things slow down here a bit because of the price of gasoline and because interest rate cuts have been put off a bit, but the markets are going to be looking past it. As we move into 2027, the markets will be focusing on how the slowdown in activity likely means rate cuts, more policy support and a reinvigoration of the cycle.
Vincent Mortier, chief investment officer, Amundi Investment Solutions
Diversify Aggressively
The idea: Over the past 100 years, stock markets have rewarded investors with high long-term real returns. Economic theory explains how: Adam Smith’s invisible hand pushes companies to create value for customers and shareholders. Those that do not create value fall by the wayside (and out of the indices) due to Joseph Schumpeter’s creative destruction. Yet picking the winners and losers is always difficult and is particularly tough at the moment, given unprecedented political, economic and technological risk. The best way to minimize risks is to diversify aggressively. With my million dollars, therefore, I would build a basket of stocks that is as diversified as possible across sectors, geographies and company sizes.
The strategy:
Artificial intelligence is a powerful tool, but the benefits of it may be shared by companies and countries more broadly than markets are currently expecting. As with the internet, the companies that ultimately benefit the most may not be the companies that are currently investing to create it. AI needs power and bandwidth, so utilities and communication-services companies could see fast revenue growth. AI will soon move from the digital to the physical world, so companies that use it to develop industrial drones could be even bigger beneficiaries.
This uncertainty about the ultimate winners of the technology favors diversifying equity holdings as much as possible. Diversification has historically increased returns. Despite the recent outperformance of US tech, the MSCI World Equal Weighted Index has generated average annual returns of 9.5% over the past 25 years or so, while the market-cap-weighted index has generated returns of 9%. A basket split equally between the equal-weighted world MSCI index and MSCI World Small Cap Index did even better, with average returns topping 10% since 2001.
There are also good opportunities in fixed income. Since the start of the Iran conflict, German two-year government bond yields have jumped from 2% to 2.7%. These yields discount that the European Central Bank will have to increase key rates three times between now and the end of the year to prevent higher oil prices turning into broad-based inflation. Yet more expensive oil may simply dampen economic growth, as mounting energy and gasoline bills make consumers spend less elsewhere. These two-year yields could prove excessively generous by the end of the summer.
The big picture: In 1994, economist Jeremy Siegel laid out the value of holding equities over extended periods in his book, Stocks for the Long Run. The last 30 years have only reinforced the message. But investors need to fight against the current concentration in the market by diversifying as much as possible across countries, sectors and market-cap sizes.
Stephen Dover, chief market strategist, Franklin Templeton
Look to Energy Infrastructure, Defense
The idea: For longer-term investors who already have a strong core balanced portfolio, we say to add satellite positions in energy infrastructure, defense and income.
The strategy:
Clearly what’s going on in the Middle East will greatly change the way that countries think about energy, energy dependency and energy interdependency. What we think about in energy infrastructure would be pipelines, liquid natural gas terminals, grid, electric vehicles, solar and even nuclear. And that is going to be boosted by demands for electricity from data centers. You can invest through publicly listed infrastructure companies or via private investments that provide equity stakes in non-listed firms engaged in energy infrastructure development.
The second area is defense. Because of the new situation globally, companies will need to increase defense spending. They’ve also found that what defense they have is outmoded and they need to upgrade. Modern defense is focused very much on technology and AI uses of technology and robots and drones and that type of thing. The clearest way to gain exposure is a global basket of defense companies, structured either as a thematic basket or a fund. Increasingly, these strategies combine traditional defense companies alongside tech companies specializing in areas such as drone, missile, missile interception and cybersecurity aspects of overall national defense and security.
Then there’s an income play. One opportunity that has come with the volatility we’re experiencing is that options are more expensive — or, if you’re selling them, more richly valued. An income portfolio would use volatility to try and create income but also to try to have something not correlated to the stock market. This idea combines traditional fixed-income sources, including shorter-duration high-yield credit and emerging-market debt, with strategies such as covered call options premia strategies (accessible via option-income funds).
The big picture: We see overall upside in the US market driven primarily by earnings, but with a lot of tailwinds. Tax refunds and capital spending are the very big drivers that we’ve never had before. We’re looking at $800 billion in capital spending that we didn’t have before and about half of GDP growth is coming from that capex. So just huge tailwinds. Of course, we have the headwinds of oil, but the US is not as energy dependent as it used to be. A lot of other countries have tailwinds and a lot of growth, too. Emerging markets have outperformed the US because they were so much more undervalued and some of them, Taiwan and Korea in particular, are plays on technology and specifically AI.