Chip giant Nvidia delivered another astonishing set of earnings, with sales growing at over 50%. It was a ringing endorsement for the AI trade, which shows no sign of fading. However, more noteworthy was the market’s reaction, with the chip giant’s shares falling in the aftermath of the results. It is the latest sign that investors may be moving on from the mega-cap technology trade.
Nvidia has been the bright star in the Magnificent Seven for 2025. While Apple, Tesla and even Amazon have flagged, it has powered ahead. With this in mind, its weakness is worrying and may suggest that the expectations for this part of the technology sector are too high. While no-one is forecasting a Dotcom-style crash, it may be a moment to look for better value opportunities elsewhere.
These opportunities are abundant. A decade of focus on a narrow handful of technology companies has seen a lot of other areas overlooked and unloved. If investors are finally spreading their wings, willing to look at other regions and sectors, these areas might get the attention they deserve – and a boost in returns for investors.
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Flexibility in emerging markets
Against the Trump administration’s increasingly unorthodox approach to economic management, many emerging markets look like havens of stability. They have lower debt levels, faster growth, and strong institutions. However, there are two factors that are really making the difference for emerging markets: the dollar and the revival of China.
A weaker dollar tends to be good for emerging markets, giving them greater flexibility to cut interest rates and lowering the cost of any dollar-denominated debt. Equally, the revival of the Chinese market has been a notable shift. Trump has continued to defer the more extreme tariffs on Chinese goods, and the Chinese economy continues to grow at 5%+. Many of the structural problems that have held back growth, such as the weakness in the property market, appear to be resolving. The government’s commitment to doing whatever it takes to support the economy is also having an impact.
Michael Bourke, manager of the M&G Global Emerging Markets fund, says this shows emerging markets in a good light: “Even as President Trump’s administration has delayed or revised their policies in the face of market turmoil, we see investors increasingly considering downside risks to the US economy, consumer sentiment, and private capital investment in a volatile policymaking environment.
“Alongside low valuations and a weaker US dollar, this backdrop reignited investor interest in emerging markets and Asia. While there is dispersion within emerging markets performance, with a great deal of variation between top and bottom performers, only two markets have posted negative returns year to date.”
He says that companies in emerging markets have been reducing debt, and increasingly trade with each other rather than Europe or the US. This has insulated them against some of the recent turmoil. Performance of the MSCI Emerging Markets index has outpaced the MSCI World for the year to date*, but emerging markets are – in general – still cheap as chips and could have further to run.
Playing long-term trends: Healthcare
Healthcare is a higher-risk option. On the plus side, it is supported by sound, long-term trends. Ageing populations across most developed countries are creating increasing demand across the healthcare spectrum. However, short-term worries over drug pricing in the US have created some turmoil for the sector. Donald Trump believes the US is paying more than it should for drugs and wants to redress the balance.
The MSCI Global Healthcare index is down 10.9% over one year, lagging the broader MSCI World index by over 27%*. There has been some woeful performance from previous superstars such as the weight loss giant Novo Nordisk.
This may sound like an uninspiring backdrop, but fund managers are increasingly backing the sector. Ben Peters, manager on the IFSL Evenlode Global Income fund, says: “Valuations are attractive, and this is being backed by some high levels of revenue growth. Organic growth for portfolio companies averaged +10% in the first half of the year, and was strong across pharmaceuticals, medical devices and services companies.”
He says there are various risks posed by the US administration, and the US remains the largest health care market. However, these may have been overplayed. He adds: “Tariffs are one risk, but the Make America Healthy Again agenda is broad and as unpredictable as other areas of policy. Drug pricing is a perennial question in the country, but the (companies we hold) provide some of the most novel treatments, plus devices and services that can make the health care system more efficient, mitigating some of the most severe downside scenarios that policy might conjure up.”
Closer to home
It is difficult to overlook the surprising resurgence of the UK this year, particularly against a backdrop of – at best – unexciting economic performance. The FTSE 100 is up 12.5% for the year to date**, outpacing the S&P 500** and the Magnificent 7 technology giants***. The small and mid-cap companies have staged a revival over the past few months, in a sign that investors are finally waking up to the value that has built up in UK markets.
With valuations still low, this is a trend that could have further to run. Ed Leggett, manager of the Artemis UK Select fund, says: “The UK could be a relative winner within the new economic order. With a trade agreement already signed, those British companies that are affected by tariffs can at last plan their medium-term response.
“Tariffs have indirectly led to lower commodity prices and stronger sterling, two trends we expect to ease inflation pressures on the UK economy, enabling the Bank of England to continue reducing interest rates through the second half of this year. Additionally, we continue to believe that in a tougher macroeconomic environment, strong companies will get stronger, so our portfolio is focused on franchises that are dominant within their sectors – for example large domestic banks and Whitbread, Tesco and Next.”
While the world may be watching the highs and lows of Nvidia, there is plenty happening elsewhere. Investors don’t need to be in thrall to the technology giants: there are overlooked and unloved opportunities in plenty of other places.
