Australian shares continued to trail their US counterparts in May as artificial intelligence-fuelled earnings growth propelled American markets higher, according to UniSuper head of fixed interest David Colosimo.
Speaking on UniSuper’s Super Informed Radio podcast, Colosimo said US shares rose more than 5 per cent in May, extending gains after a 10 per cent increase in April, while Australian shares gained less than 1 per cent over the month.
“Australian shares, they’re actually still 5 per cent below their pre-war peak. You compare that to the US, shares there are at all-time highs and actually 8 per cent above the pre-war peak,” he said.
The strong performance in US equities has been underpinned by a robust corporate reporting season, particularly among technology companies benefiting from accelerating AI adoption.
Colosimo said analysts had expected earnings growth of around 12-13 per cent before reporting season, but first-quarter earnings growth now appeared to be tracking at around 28-29 per cent.
“Reporting season though was even stronger than the usual pattern. Right now, first quarter earnings growth looks to be about 28 per cent or 29 per cent in the US,” he said. “You really only see that sort of growth rebounding out of a recession when there’s been depressed earnings.”
Technology companies remained the standout performers, with earnings growth approaching 60 per cent across the broader sector.
The AI investment theme also continued to dominate markets, with Colosimo pointing to rapidly rising usage rates and an escalating race among major technology companies to expand computing capacity.
“There’s been a lot of scepticism over the years about the durability of the AI boom, but actual AI usage is now skyrocketing,” he said. “According to Google, their token use on their systems is up actually seven times in the last 12 months.”
He noted that the combined capital expenditure of Amazon, Google, Microsoft and Meta is expected to rise 98 per cent over the coming year to US$715 billion.
“The market’s really focussed on the shortage of compute rather than being worried about excess investment,” Colosimo said.
While the US has been at the centre of the AI boom, Colosimo argued the greatest beneficiaries may be Taiwan and South Korea due to their dominant positions in semiconductor manufacturing.
“Taiwan has a smaller population than Australia but now has the fifth biggest stock market in the world,” he said, noting that more than 40 per cent of the Taiwanese market is represented by Taiwan Semiconductor Manufacturing Company.
Australian markets, meanwhile, faced a more challenging backdrop.
Major banks fell between 4 per cent and 7 per cent during May following what Colosimo described as a disappointing reporting season, while earnings expectations across the broader market moved into downgrade territory.
“We’re seeing lower estimates for earnings,” he said. “We did have quite a few big companies announce earnings downgrades during May.”
Despite limited direct exposure to AI, some Australian companies benefited from the associated infrastructure build-out. Data centre operator NEXTDC rose 7 per cent during the month, while mining companies supplying industrial metals used in data centres and semiconductor production also recorded gains.
“The mining sector provides a lot of industrial metals, especially copper, that does feed into the AI capex cycle,” Colosimo said.
Looking ahead, Colosimo said investors would be watching the Reserve Bank of Australia’s June meeting closely, although he expected policymakers to leave interest rates unchanged after three consecutive rate hikes.
“In the minutes to their last meeting, they gave a pretty clear indication that the Board thinks it’s time to sit back and assess the impact of the hikes they’ve already delivered,” he said.
“I’m actually pretty confident they’ll hold steady in June. It is also actually possible that we may have even seen the end of hikes.”
