The next 10 years for the big banks and harnessing AI momentum
Where investors should look for growth as banks won’t provide, and why we have a way to go with the AI boom.
Tim Carleton, CIO at Auscap Asset Management, has had success with his funds despite largely staying away from the banks and miners. And he sees no reason to pile back into the ASX’s two largest sectors any time soon.
He says that the Big Four banks haven’t grown earnings over the past decade and that trend may continue for the next 10 years. The reason? For the first time in a long while, the banks face a significant competitive threat – in the form of Macquarie Bank.
In July, Macquarie’s home loan book grew at 6.4x the average of the major banks to stand at $147.7 billion, according to APRA. It added $3.2 billion in new business over the month, representing 39% of the growth in total mortgage balances across all banks.
July was the strongest monthly performance for Macquarie in the home loan market since February 2021. Over four years, Macquarie has increased its mortgage business by more than 3x the pace of the broader banking system, lifting its overall share from 4.7% to 6.3%.
Source: APRA, Morningstar’s Nathan Zaia
“We think this trend is going to continue and if you extrapolate their current rate of growth, they [Macquarie] will comfortably go past ANZ and NAB inside the next decade,” Carleton says.
Carleton believes the major banks are already selling a commoditized product because they’ve outsourced their customer relationships to mortgage brokers.
Now, they must compete against a lean and efficient Macquarie Bank. Unlike the Big Four, Macquarie has new IT systems and it doesn’t have a legacy cost structure – read: no bank branches. That means it has lower costs and can price loans aggressively, which is exactly what’s happening.
Carleton says this structural challenge comes at a time when big bank valuations are near all-time highs. And that doesn’t bode well for future returns.
Source: Factset. Auscap
Meanwhile, Carleton says the iron ore miners have structural challenges of their own. China accounts for 56% of steel consumption and its consumption likely peaked in 2020.
Reduced Chinese demand for steel is happening as iron ore supply is about to pick up. The massive Simandou project in Guinea is targeting first ore shipments by the end of this year, ramping up to 120 million tonnes per annum. That represents about 5% of global iron ore production.
Carleton thinks the challenges for banks and miners are also challenges for the ASX more broadly, given that the two heavyweight sectors account for 50% of the All Ordinaries Index.
Source: Bloomberg, Auscap
If investors should stay away from the large-cap banks and miners, then where should they go?
Carleton doesn’t think the answer lies with small caps. He says the smaller end of the market is full of unprofitable companies and speculative resource shares.
Instead, he reckons mid-cap stocks may be your best bet as they have a track record of faster earnings growth and superior share price performance.
Source: IRESS, Bloomberg, Auscap
Source: IRESS, Auscap
Carleton will have his critics. Whether Macquarie proves a genuine competitor to the Big Four banks remains to be seen as it’s mainly taken share from smaller banks so far. And he’s undoubtedly talking his own book by advocating mid-cap exposure.
Nevertheless, he makes some relevant points about how investors should think carefully about the construction of their Australian-based portfolios.
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The number of AI sceptics seems to be growing and Firstlinks has featured a few of them in recent editions. So, it’s a good time to hear from one of the bulls.
Nick Griffin, the CIO of Munro Partners, has made a name for himself by backing major technological trends and the companies best exposed to them. When he speaks on tech, investors listen.
And Griffin thinks concerns about a bubble in AI are way overblown:
“This is not a bubble, this is a boom. This is a boom that’s literally two-and-a-half years old and it’s probably going to last for the next five to 10 years.”
Why does he say this? Because Griffin believes we’re witnessing an intelligence revolution. If the industrial revolution replaced muscle with machines, then intelligence revolution will augment your brain as well as the brain of every machine around the globe.
He says every company is going to take their data and put intelligence on top of it to get improved outcomes. And they’ll either do that using a so-called hyperscaler or via their own data centre.
Why do the trends last a long time? When the first PC came out, it was five or six years later that workplaces started to get PCs.
Similarly, only some people and businesses use AI right now. There are a lot more who will end up using it, hence why there is a long runway for growth.
For illustrative purposes, the companies shown may or may not be held in the Munro Funds. Numbers are in USD. TAM stands for total addressable market. Slide prepared September 2025.
It’s why Griffin isn’t concerned with the rapid construction of data centres. He quotes Nvidia which expects data centre capital expenditure of US$3-4 trillion by 2030, up from around US$1 trillion today.
And Griffin is also unfazed about returns from this massive capex bill.
He says investors need only to look at the Magnificent Seven stocks to see where productivity gains will be made. He says AI has helped these companies grow revenue by more than 50% over the past three years, while keeping their headcounts relatively flat.
Source: Munro Partners and industry research as at 31 May 2025. Revenue ($b) is in USD. The companies mentioned may or may not be held in the Munro Funds.
He says what’s happened with the Magnificent Seven will spread to all sectors:
“Every company on the planet … right now is sitting around the boardroom saying how can we use AI to either reduce people, save time, or improve customer satisfaction, and all of that basically equals productivity.”
As to the best way to get exposure to AI, Griffin advocates buying the “shovels” to the boom, including semiconductor and cloud service companies. The largest holdings in his Munro Global Growth Fund (ASX: MAET) are Nvidia, Microsoft, Amazon, Meta, and TSMC.
For illustrative purposes, the companies shown may or may not be held in the Munro Funds.
The losers from the AI boom will include office property and white collar services, Griffin believes.
** Disclosure: Auscap and Munro Partners are affiliates of GSFM – a Firstlinks sponsor. Tim Carleton and Nick Griffin spoke at a recent media briefing hosted by GSFM.
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