Which sectors will remain promising?

If we were to ask investors which sectors they see as having the most growth potential, the information technology sector — simply tech — would likely be at the top of the list, thanks to the AI craze. 

However, what many overlook is that while companies are pouring massive amounts of money into developing and integrating AI into their products, the actual outcomes are still uncertain. 

Profitability remains a big question mark for many firms, a reality that hit several companies hard after they discussed this during their previous quarterly earnings calls. Since then, not much has changed. 

Large companies such as Microsoft, Amazon, Alphabet, and Meta continue investing heavily in upgrading their hardware and expanding the servers' capacity to run their AI models. 

The main problem is that, in most cases, these products do not generate revenues that exceed the costs of bringing them to market. And there is still no quick solution. 

The reason for the latter is that, for many of these tech giants, there is increasing competition from open-source offerings, making it even more challenging to maintain a competitive edge. 

However, for companies that make the essential products needed for AI development, such as TSMC, this has not been an issue so far. While demand continues to increase, their main concern remains geopolitics. 

Not surprisingly, the Taiwanese company, which makes chips for giants such as Apple and AMD, delivered a strong earnings report last quarter, which delighted investors and helped the broader market. 

Specifically, the company's revenue soared 36% to $23.5 billion, while net profit grew 54.2% to $10.1 billion. Demand for its cutting-edge 3nm chips also rose to 20%, three times higher than last year. 

As a result, Apple stock price saw a positive shift, while AMD chart reflected a similar upward trend, with both stocks reacting favorably to the news. 

The problem is that if the tech giants do not devise a clear revenue path in the AI industry, the demand for chips could decrease, thus punishing the sector's commodity sellers. 

This leads to the idea that looking elsewhere for opportunities to diversify risk besides semiconductor producers and the IT sector is prudent. One sector that comes to mind is cybersecurity. 

Spending in this area is expected to continue rising next year: global end-user expenditure on information security will reach $183.9 billion in 2024, with a further 15.1% increase to $212 billion in 2025. 

It's important to note that, despite the significant risks of data breaches, spending on security still makes up a small part of the overall IT budget. This means there are many opportunities in the market. 

In addition, hacking risks are unlikely to decrease, especially with Generative AI providing cybercriminals with new tools. Therefore, demand for cybersecurity solutions is expected to remain strong. 

As for the major players in the industry, add Palo Alto Networks, Cisco, CrowdStrike, Fortinet, and Microsoft to the watchlist. However, it should be noted that these companies are not exactly cheap.