Text on screen: PIMCO
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Text on screen: What AI bond opportunities are worth owning?
Text on screen: Mohit Mittal, CIO Core Strategies
Mohit Mittal: We are not looking for the top 2 or 3 companies that will win the race.
Text on screen: Debt investors seek resilience across scenarios
Images on screen: Data Centers, Chip Manufacturing
Instead, we are focusing on companies which will have most resilient cash flows across a range of scenarios and then looking to invest in them at attractive terms.
AI funding is creating huge investment needs across data centers, across chip financing, as well as across energy infrastructure. This is leading to widening in spreads and a move higher in yields, which creates this opportunities in the first place.
Text on screen: How do you assess AI credit opportunities?
Text on screen: Sonali Pier, Portfolio Manager, Multi-Sector Credit
Sonali Pier: There's significant amount of capital that needs to be raised across a wide number of asset classes, investment-grade, high-yield, structured products and direct lending.
So when we look at opportunities, we’ve seen, for perhaps every 100 deals we look at, we may only invest in two that meet the bar for what we're looking for from the perspective of cash flows, structure and protections.
Text on screen: TITLE – What we look for: BULLETS: Assets that outlast the debt, Diversified businesses, Resilient cash flows
So for example, do the assets outlast the debt? at the end, we don't want to be the ones bearing asset-lite refinancing risk. Similarly, we're looking for companies that are resilient.
Which of these companies will be completely disintermediated versus those that can actually have AI be a tailwind toward growth?
We want to make sure that the cash flows are going to outlast our lending. And by doing so, we're looking for robust cash flows, structure that's aligned as well as covenants to ensure downside protection as well.
Text on screen: What risks are AI investors overlooking?
Mohit Mittal: At the moment, everyone is focused on will AI change the world?
Text on screen: Can AI output justify today’s pace of investment?
Images on screen: Data Centers
I think what we are focused on is will AI change the world fast enough to justify the pace of investments?
Throughout history, when we look at big technological investments, be it railroads, be it telecom, be it the internet, all of these were very productive technologies in the end. But along the way, many investors lost a lot of money.
Images on screen: PIMCO forum
In our investment committees, in our forums, we are focused quite extensively on not just the AI boom scenario, but what if the cash flows don't materialize as fast as expected? What if demand doesn't show up? What if demand growth is slower than the pace of investments? All of these could lead to negative outcomes for investors.
Images on screen: PIMCO Trade floor
So that's what we are trying to do. Find companies which will have resilient cash flows across a range of scenarios, including the AI winter scenario.
Text on screen: For more insights and information visit pimco.com
Disclosure
A word about risk: All investments contain risk and may lose value. Investments with exposure to the artificial intelligence sector may involve heightened risks, including rapid technological change, competitive disruption, elevated valuations, regulatory uncertainty, data privacy and cybersecurity concerns, infrastructure dependencies, and reliance on third-party models or platforms. AI-related opportunities may not develop as expected, fail to produce anticipated productivity or revenue benefits, or be concentrated among a limited number of issuers, and could result in increased volatility or loss of capital. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Equities may decline in value due to both real and perceived general market, economic and industry conditions.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
This material contains the current opinions of the manager and such opinions are subject to change without notice. This material is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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