Update from the CIO Dr Fadi Zaher, 19 September 2026
In 1900, railroads were over 60% of the US stock market. Today they are about 1%.1 Everyone assumes their owners were wiped out, but the railroads beat the broad US market over the century that followed.1 The industry shrank to nothing and paid its long term owners anyway.
I wrote in May about the lag between a shock and the point at which it reaches company accounts. In July, I argued that resource costs were building as a charge that most models miss, because they rarely appear as a single line item.
At the 1FinanceWorld conference, Henning Stein asked the obvious question: if AI is as big as everyone says, why not just own it? Because the market can be right about AI and wrong about the price. Four questions hide inside that one. Will it work? Will it matter? Who survives? And, who gets paid?
The first two are almost certainly yes. The money is in the last two, and that is where investors spend the least time.
The chart below shows a clear pattern. Over the past 20 years, oil and gas, telecoms and media have all risen, peaked and then faded. Today, semiconductors lead the market, with a larger share than any of the others ever reached. Every peak looked permanent at the time and history tells us it never is.
The real question is whether, five years on from the peak and amid continued enthusiasm surrounding AI, investors are still being rewarded.
Chart 1: The rise and fall of industries
Source: Osmosis Investment Management. Data shows industry weight over time, using MSCI World universe and GICS Sector definitions. You cannot invest in an index. Past performance is not indicative of future results. Period is Jan 2006 – August 2026.
Who survives and who gets paid?
Some companies get paid whichever AI firm wins: chip tooling, power generation, transmission, transformers, cooling. They sell to all ten runners. The risk is in the crowded names. Too many look the same, can be easily swapped out, and are priced as if they already have won.
Take energy – power costs are rising across Western economies, and AI is part of the reason. The IEA predicts data-centre demand increasing from 415 TWh in 2024 to about 945 TWh by 2030, moving from 1.5% of world electricity demand to just under 3%. Compute scales faster than grids ever will. The cheerful case is AI escaping the data centre into banks, factories and hospitals. The gloomy one is the data centre discovering it cannot escape the grid. Either way, the firm making the same product with less power keeps its margin.
So how does this play out in our portfolios?
Not by buying the AI label. We look for where scarce inputs are being used better than peers, and where the market is paying for that discipline rather than a story. This quarter, that helped stock selection across our core strategies. Efficient operators in the industrials sector did much of the work, while Japanese companies helped in IT and Comms. Meanwhile, Utilities cost us: Edison and PG&E are both resource-efficient businesses, but California wildfire risk takes no interest in how efficient your grid is. Microsoft and Salesforce also hurt. Nvidia helped, which often surprises people. We own it because it currently produces more output per unit of scarce input than the alternatives. If that stops being true, that position will change.
The better question right now is whether the market is starting to reward the thing we measure. It is getting closer: dispersion is high, breadth is improving, momentum is wobbling, and fundamentals are being paid for again. But the raw factor still carries style drag. Three decent months do not change that.
What we intend to do about it
The research hands us something better than an opinion: a clock. Industries usually turn when new company formation rolls over while output is still climbing. By that measure this rush still looks early, because entrants are multiplying. But early is not the same as cheap. The question is still who converts the theme into economics. That is why we are launching the Osmosis Efficient single and multi-factor equity family. Efficiency belongs beside value, quality, momentum and low risk because it asks a different question: inside each industry, who is doing more with less? Momentum can pull you into the crowded names. Value can push you out of the theme too early. Efficiency keeps the focus on the companies doing the economic work, not just the companies carrying the label.
Avoiding AI was never the point. Not overpaying for it is. Every boom meets a physical limit in the end and this one meets the power grid. The firms that come through already make more with less.
- 1. Dimson, Elroy, Paul Marsh & Mike Staunton (2015), “Industries: their rise and fall”, Credit Suisse Global Investment Returns Yearbook 2015, Credit Suisse Research Institute, pp. 5–15.
- 2. International Energy Agency (IEA), Energy and AI, Paris, 10 April 2025, “Energy demand from AI”.
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