The AI Inflection: Investing Beyond Sectors in a Thematic World

By: Nick Niziolek and Dennis Cogan, Calamos Investments

Artificial intelligence is a structural force reshaping capital flows, business models and the framework investors use to understand opportunities. Traditional investment approaches, defined by sector classifications and static factor tilts, are increasingly inadequate, as thematic, actively managed strategies are better suited to not only capture the AI-driven opportunity set, but also essential to managing risks accompanying this transformation.

Artificial intelligence is a structural force reshaping capital flows and business models. We believe it should also reshape the frameworks investors use to understand opportunity. Traditional approaches anchored in backward-looking sector classifications and static factor tilts are increasingly inadequate. We strongly believe a thematic, actively managed approach is better suited to not only capture the AI-driven opportunity set but also essential for managing the risks accompanying this transformation.

Why GICS Sectors Fail in an AI-Driven World

The Global Industry Classification Standard (GICS) organizes the investable universe into 11 sectors based primarily on a company’s principal business activity. This framework was designed for a world where industry boundaries were relatively stable, and companies could be neatly categorized. AI is breaking those boundaries.

An investor screening by GICS sector would be unlikely to connect the investment opportunities of a global, multisector AI value chain with sweeping needs for infrastructure, power, and technology hardware and software. Participants include industrial, utilities, and technology companies, across developed and developing markets.

The transition from electrical/copper-based data transmission to optical (light-based) networking is a sub-theme in the AI infrastructure buildout that vividly illustrates the limits of a GICS framework. The optical networking value chain crisscrosses countries and sectors with key players from Japan (fiber manufacturing; industrials sector) to Taiwan (semiconductors; information technology sector) and the United States (photonics, information technology). A sector-constrained or regionally siloed approach misses these interconnections; a thematic, globally oriented process captures them naturally.

These limitations are especially pronounced in emerging markets, where AI supply chain contributions manifest very differently across countries: Taiwan through semiconductor manufacturing, South Korea through memory and displays, and China through a rapidly maturing domestic AI ecosystem. Sector-based allocation would lump them under “Information Technology,” missing the critical distinctions driving returns.

How AI Is Reshaping Factor Performance

The AI revolution is also altering the behavior of traditional equity factors that many investors rely upon for portfolio construction. The investment industry has long categorized companies into boxes —“Growth” versus “Value,” high “Quality” versus low — as if these labels represent fixed, immutable characteristics. These classifications are backward-looking, and the boundaries between them are far more fluid than most investors appreciate.

For example, “Growth” versus “Value,” is not a binary choice for us. We prefer to think of growth and value in concert, investing in businesses with compelling growth fundamentals that support the ability to compound intrinsic value over time.

Similarly, as it relates to “Quality,” wide swaths of the economy where business models were previously believed to be highly defensible — including knowledge-intensive businesses, software platforms, IT services, professional services — are facing the forces of creative destruction from AI. As a result, all three components of a discounted cash flow framework — expected growth rate, discount rate, and time horizon — are being marked more conservatively for many of these businesses. Meanwhile, as the once-assumed durability of “quality” cash flow streams comes under scrutiny, investors are increasingly recognizing the value of nearer-term cash flows less vulnerable to AI disruption, often in more cyclical or tangible-asset-intensive areas that constitute the “Value” factor.

The Bifurcation and Our Approach

The AI investment cycle is producing a clear bifurcation that does not respect sector boundaries. The most immediate beneficiaries are companies providing infrastructure — semiconductors, data center equipment, power generation, and cooling solutions. Beyond infrastructure, emerging opportunities in humanoid robotics, industrial automation, and autonomous systems represent the next frontier. Conversely, companies in software, knowledge services, and IT consulting face extended valuation pressure. A third cohort — cyclical businesses benefiting from the global recovery while perceived as less vulnerable to AI disruption — may be the most interesting for active investors.

Our research coverage is organized around key secular and cyclical themes rather than traditional GICS sector assignments. Our investment process screens over 11,000 companies globally, leveraging proprietary quantitative tools alongside deep fundamental research to identify inflections in real time. Today, approximately 20% of the names in our portfolios were not on our radar two years ago, and we anticipate this figure will only increase as AI disrupts moats across many industries.

The AI revolution is not a sector story; it is a global, multidecade transformation that touches every industry, geography, and investment factor. Investors anchored to backward-looking classification systems or complacent positioning in yesterday’s winners risk being left behind.

This article excerpts a white paper, available at www.calamos.com/globalcapabilities.

About the authors: Nick Niziolek, CFA, Co-CIO, Head of Global Strategies, Senior Co-Portfolio Manager and Dennis Cogan, CFA, SVP, Senior Co-Portfolio Manager, have each been members of the Calamos Investment organization for more than 20 years, and contribute nearly 50 years of combined industry experience. They are responsible for portfolio management for the firm’s global, international, and emerging market equity strategies. Additionally, as a Co-CIO, Nick is responsible for oversight of investment team resources, investment processes, performance, and risk management.

Disclosures: Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be appropriate for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.

Calamos Advisors LLC.