Update with Mark Schmehl

In this episode of Fidelity Connects, host Pamela Ritchie sits down with Portfolio Manager Mark Schmehl to explore the transformative impact of AI on global markets and investing strategies. Schmehl, with over 15 years of experience managing Fidelity funds, argues that AI is not just a short-term trend but a generational shift that is fundamentally altering productivity, business models, and economic growth. He emphasizes that despite macroeconomic turbulence—particularly in the Middle East—AI-driven companies are insulated from such volatility, with strong fundamentals and massive growth potential. Schmehl highlights the shift from high-margin software businesses to commoditized compute-driven models, warning that traditional software stocks may be overvalued. He also discusses the growing importance of AI in sectors like healthcare and product development, while noting that physical industries like rail and mining remain largely untouched by AI, potentially becoming future bottlenecks. Schmehl expresses optimism about the long-term economic benefits of AI, predicting lower inflation and faster growth due to enhanced labor productivity. He also touches on the potential for AI to reach artificial general intelligence within the next year or two, a development he believes will redefine the world. Finally, he offers advisors practical advice on managing client anxiety during market volatility by focusing on long-term strategy and minimizing emotional reactions. Key takeaways include: AI is a structural, not cyclical, force reshaping economies; productivity gains from AI could drive faster growth with lower inflation; physical infrastructure sectors may become new bottlenecks; investors should focus on companies that combine AI with physical assets (like Amazon); and the market is underestimating the true scale and urgency of AI’s expansion. Schmehl’s confidence in AI’s long-term trajectory, despite current market skepticism, underscores a contrarian investment thesis centered on deep technological transformation.