The Royce Roundtable: Risks and opportunities in AI—and elsewhere

In recent discussions, investment experts highlighted the dynamic impact of AI on the US small-cap market, emphasizing both opportunities and inherent risks. The resurgence in small-cap stocks has been fueled by declining interest rates and stronger earnings, with notable performances from sectors like biotech and Bitcoin mining. However, concerns remain about sustainability as lower-quality companies have primarily driven gains thus far. The evolving role of AI continues to captivate investors' attention, promising productivity enhancements yet posing challenges in quantifying its benefits across industries.

Moreover, policy uncertainties around tariffs persist as significant factors influencing economic forecasts and investor sentiment. While the initial AI boom has concentrated wealth among a few large players, there is optimism that broader applications will eventually benefit a wider range of companies. Investors are advised to consider quality-focused strategies within their portfolios to navigate potential volatility while capitalizing on long-term growth prospects in both AI-related sectors and other emerging areas like non-AI tech and consumer markets affected by inflation dynamics.