Elise McKay: The AI theme is real – here’s how to pick the winners

As demand for AI accelerates, every part of the market will see businesses that win and lose. The trick is telling the difference. ELISE MCKAY explains

• AI spending already at 1 per cent of global GDP
• But there will be winners and losers in every sector
• Find out about Pendal’s Australian share funds

ARTIFICIAL intelligence is rapidly maturing into a durable part of the business landscape, with adoption spreading across industries and reshaping how companies operate, argues Pendal’s Elise McKay.

Despite bubble talk in some quarters, AI-related capital-spending already accounts for about 1 per cent of global GDP notes McKay, portfolio manager for Pendal Horizon Sustainable Australian Share Fund.

After recently meeting with a range of CEOs and technology leaders in the US, McKay is convinced the scale of spending marks a structural shift that will reshape industries, drive long-term productivity gains and create wide gaps in company performance.

However investors will need to carefully distinguish between companies that will adapt – and those that cannot.

“Demand for AI is accelerating – and generative AI tools are already changing how well-established businesses are operating,” says McKay

“But there are going to be winners and losers in every sector.

“The key for investors is building a framework that allows us to think about who will be a winner versus who will be a loser.”

Unprecedented capital investment

History shows capital deployment of this scale ultimately drives industry change and higher labour productivity.

“The questions investors need to be asking about generative AI is not just how big the investment cycle will be and how long it will last – but also what are the flow-on impacts to different parts of the market?

“Where will it take investments from? Where will it cause other sectors to grow?

“Where will it create entirely new sectors?

“And the biggest unknown is to what extent labour markets adjust – how are people retrained, re-educated and do they need to find new roles?

“All this creates change – at the heart of what we do as investors at Pendal is anticipate change, looking at these structural forces and how they create dispersion in outcomes.”

Portfolio opportunities

Infrastructure spending alone creates direct opportunities, says McKay.

The scale of AI investment is creating persistent supply-demand imbalance with businesses reporting a structural shortage of AI compute capacity.

Power use by data centres, the facilities that house the servers and cooling systems required for AI compute, is projected to grow 165 per cent by 2030 compared to 2023 levels.

That means US electricity demand, after years of flat lining, is now growing by around 2.5 per cent annually, with Europe also accelerating, requiring significant new transmission and an additional 20,000 trained workers.

Enterprise adoption lags capability

But while the infrastructure is being built at speed, there are emerging signs that some companies are struggling to use it effectively, says McKay.

Academic studies indicate AI’s potential to lift labour productivity by 25 to 30 per cent, but just 5 per cent of companies are reporting positive returns from agentic AI implementations – where AI systems take actions autonomously.

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AI excels in domains with clear success criteria like writing software or following documented procedures, but where nuanced work and human judgment is required, success rates drop.

The risk of getting implementation wrong is material, and companies that deploy AI agents poorly risk customer backlash, says McKay.

“The long-term viability of the software is not in question – rather, the critical factor is whether incumbents can evolve effectively to adapt to the new AI-driven world,” she says.

Identifying AI winners – a framework

McKay says distinguishing genuine AI opportunities from hype requires assessing how companies approach implementation across five interconnected areas.

The starting point is strategic intent. Successful companies align their AI investments with existing competitive advantages rather than treating the technology as a standalone initiative.

But strategy must be accompanied by capability – meaning quality data, skilled technical talent, and the right computing infrastructure to develop and deploy AI solutions at scale.

The third factor is execution including leadership commitment, organisational culture, and frontline teams prepared to implement AI tools in practice.

McKay says investors should also look for evidence of measurable returns and disciplined capital allocation, not just rising AI spending. Companies must demonstrate that investment translates into productivity gains or revenue growth rather than simply higher costs.

Finally, governance and risk management protect against implementation failures that may damage reputation or breach regulatory requirements.

“The build out of the internet and the electric motor peaked at around 1.5 to 2 per cent of GDP per annum – we are still not there yet with AI. This kind of capex creates opportunity and change.

“We know humans are adaptable – 60 per cent of jobs today didn’t exist in 1940s. So as this general-purpose technology gets built out, new opportunities will emerge.

“The question is: how do we as equity investors take advantage of that opportunity?”

About Elise McKay and Pendal Australian share funds

Elise is an investment analyst and portfolio manager with Pendal’s Australian equities team. Elise previously worked as an investment analyst for US fund manager Cartica where she covered a variety of emerging market companies.

She has also worked in investment banking and corporate finance at JP Morgan and Ernst & Young.

Pendal Horizon Sustainable Australian Share Fund is a concentrated portfolio aligned with the transition to a more sustainable, future economy.

Pendal Focus Australian Share Fund is a high-conviction equity fund with a 16-year track record of strong performance in a range of market conditions. The Fund is rated at the highest level by Lonsec, Morningstar and Zenith.

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management. 

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