Large asset managers look past AI stocks toward government-boosted sectors

The world’s largest investment firms are redirecting attention from artificial intelligence stocks to longer-term opportunities driven by government spending on infrastructure, defense, and other strategic priorities.

While Wall Street debates the sustainability of AI-driven stock gains, major global investors are looking beyond the AI boom toward long-term government spending trends. These spending patterns, driven by geopolitical, technological, and demographic pressures, are expected to reshape markets in the coming years.

Asset managers are diversifying their investments across infrastructure, energy transition, healthcare, and defense sectors.

Mark Haefele, chief investment officer at UBS Global Wealth Management, which oversees $4.5 trillion in assets, said many investors “underestimated the impact that (stimulus) could have on real and financial assets.”

Speaking to the Reuters Global Markets Forum, Haefele described how his firm is aligning its thematic investments with government spending, focusing on power, resources, healthcare, and defense sectors.

Government spending initiatives in the U.S. and Europe are fueling this investment shift. In July, the United States enacted a significant tax-cut and spending package that will increase government debt by trillions. The law extends tax reductions from President Donald Trump’s first term while boosting border security and defense spending. It also reduces Medicare and Medicaid funding.

Equally bold programs are emerging from European governments

Germany has introduced a 500-billion-euro ($586 billion) infrastructure fund designed to bypass its tight fiscal constraints. Separately, NATO countries have agreed to boost defense spending to 3.5% of GDP.

Antonio Cavarero, head of investments at Generali Asset Management, which manages $430 billion in assets, said these fiscal commitments are unusual in their scale and duration. “Fiscal stimulus is always a big element of the performance of the financial markets,” Cavarero noted. He added that the structural changes these programs create would continue for years, though “it takes time before those moneys actually percolate (through) the system … before you see them becoming reality.”

Cavarero identified nuclear power, energy infrastructure, biotech innovation, and defense as industries that “cannot be ignored by the market.” However, he cautioned that “at some point, we will need to deal with these debts.”

Defense stocks tell a different story

The S&P 500 index has climbed nearly 14% this year, outpacing Europe’s benchmark STOXX 600 index, which gained 9.5%. But the aerospace and defense index has jumped almost 68%, demonstrating how government priorities are lifting defense and industrial companies despite AI’s broader market dominance.

Saira Malik, chief investment officer at Nuveen, which manages $1.3 trillion in assets, expects stock gains to spread beyond U.S. technology companies to cyclical sectors, small-caps, and value stocks. “U.S. outperformance is not the only game in town this year, thanks to a weaker dollar,” she said.

Malik recommended investors maintain balanced portfolios with a tilt toward U.S. markets. He said investors shouldn’t concentrate exclusively on American assets while ignoring other opportunities, but they also shouldn’t take positions against the United States.

She also highlighted opportunities in infrastructure, utilities, and waste management, calling them resilient options that protect against inflation.

Both UBS and Nuveen emphasized active management strategies over passive index investing. Haefele suggested that investors should focus on active strategies instead of relying on overall market performance.

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