Rudi: It’s not a bubble, AI’s next winners, and what investors are overlooking

Investing feels easier when markets are messy. When volatility spikes and fear takes hold, putting fresh capital to work can feel rational, even opportunistic. But when markets are cruising near record highs, valuations look stretched, and AI stocks are powering ahead like a runaway train, adding to a portfolio can feel unnerving.

It’s a sentiment shared by many right now. With the ASX 200 trading at elevated multiples and earnings growth on track to post its third consecutive annual decline, the contradiction is hard to ignore.

But according to FNArena Editor Rudi Filapek-Vandyck, it’s not a bubble, and the market isn’t broken. The real problem? Investors are using the wrong lens.

“The averages are masking the detail,” he argues. High index-level valuations are being distorted by a handful of heavyweight stocks, while strong underlying growth is still coming through in key parts of the market.

In this episode of The Rules of Investing, Rudi joins Livewire’s James Marlay to unpack what’s really going on beneath the surface, why some companies are still worth owning at premium multiples, and how investors can navigate another volatile reporting season without getting spooked out of the market.

Listen to the podcast by clicking the player below

The ASX is in better health than you think

The narrative that “markets are expensive” is one Rudi hears too often, and he’s not having it.

Yes, the ASX is at an all-time high. Yes, the index-level P/E looks elevated. But take a closer look, and the picture isn’t as simple.

“The market has been polarised for years. Using averages to judge valuation doesn’t cut it anymore,” he says. “CBA is over 11% of the index and trading at valuation levels most of us haven’t seen in our lifetimes, that skews everything.”

The same goes for earnings. This August will mark the third straight year of negative earnings growth on average. But again, dig into the details and it’s a different story.

“If you strip out banks and resources, corporate Australia is still growing. You’re getting mid-to-high single digit EPS growth across many sectors.”

That’s not a red flag, it’s closer to a long-term average.

So what’s the disconnect? Investors, Rudi argues, are still fighting the last war. “We keep trying to judge the current market by yesterday’s rules. But we need to start looking forward.”

CSL is under pressure, but still on track

Plenty of eyes will be on CSL Limited (ASX: CSL) this season. The company has lagged since COVID, and patient investors are now expecting more than just guidance reaffirmation, they want delivery.

Rudi sees both sides.

“Yes, the share price has gone nowhere. But underneath that, CSL is still growing at double-digit rates. That’s not a broken business.”

He notes the company has delayed its return to pre-COVID margins twice now, and another delay could test the market’s patience.

“There’s pressure on management to show they’re back on track. They don’t need to overpromise, but they do need to read the room.”

The wildcard? U.S. healthcare policy. “They can’t control everything. If the anti-pharma rhetoric in U.S. politics ramps up, it may hit CSL no matter what they do.”

Still, Rudi isn’t bailing. If he were to rotate out of CSL for the next few years, it wouldn’t be into something lower quality, it’d likely be into ResMed, another compounder in the same space.

How Rudi is playing AI on the ASX

One theme likely to echo through August is artificial intelligence. The results may not show it yet, but the boardroom chatter is only going to get louder.

“You’re going to hear a lot of AI talk, but you probably won’t see much of it in the numbers this season,” says Rudi. “Maybe by February, more likely August next year.”

So who’s best placed? For Rudi, the answer is simple, data centres and software platforms.

He’s long been a backer of NextDC (ASX: NXT) and Goodman Group (ASX: GMG), and while others are still questioning their valuations, he sees the thesis playing out.

“Investors still don’t really understand why we need NextDC. But it’s critical infrastructure. If they execute, today’s prices will look cheap in three years.”

Further up the stack, he sees strong positioning from TechnologyOne (ASX: TNE), Xero (ASX: XRO) and Wisetech (ASX: WTC), all applying AI inside their operations, with potential for stronger margins and lower costs down the track.

“The scepticism we’re seeing in Australia will prove to be misplaced. It’s early days, but you want to be positioned now.”

Rudi’s picks for the next five years

A little over a year ago, we asked Rudi to name the one stock he’d own for the next five years. In classic form, he picked three: Goodman Group, NextDC and CSL.

This time around, he’s standing firm.

“If you’re worried about CSL’s political risk, swap in ResMed. But I still think all three are quality, long-term exposures.”

He also made the point that these aren’t just one-off stories, they’re beneficiaries of megatrends.

“Stop looking at Goodman like it’s just a property developer. Stop looking at NextDC like it’s just burning capex. These are structural growth plays. That’s why you own them.”