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The current AI investment trend fueling the market rally, according to BlackRock, has stamina to endure for an extended period. However, the investment in AI is poised to have inflationary effects in the short term, as mentioned by BlackRock in a recent weekly commentary.
The prominence of AI prospects in the market is exemplified by Nvidia. The AI chipmaker claimed the title of the world’s most valuable publicly traded company on Tuesday, surpassing the valuations of Microsoft and Apple with a staggering $3.3 trillion valuation. Nvidia has significantly contributed to the double-digit gains in the S&P 500 and the Nasdaq Composite this year. Meanwhile, Apple achieved record highs after the introduction of its Apple Intelligence AI system.
“The AI rally is underpinned by earnings and still has room for growth, in our analysis. We do not identify any signs of an AI bubble,” expressed Jean Boivin, the head of the BlackRock Investment Institute, in a statement released on Monday.
A “concentrated group of AI winners” is anticipated to steer market returns over a short-term tactical window of six to 12 months, BlackRock indicated, without specifying particular stock names.
Highlighting the profitability of mega-cap tech firms, Boivin contrasted them with the “unprofitable” entities that symbolized the dot-com bubble era. BlackRock maintains an overweight position in the tech sector and the AI theme, supported by “healthy corporate balance sheets and earnings momentum favoring our pro-risk attitude,” Boivin elaborated.
Nonetheless, BlackRock cautioned that its portfolio managers are increasingly recognizing the potentially inflationary impact of initial capital spending required for AI expansion. The surge in spending on AI data centers is notable, with expectations of extensive future expenditure.
“This wave of capital expenditure and resource utilization could create bottlenecks, leading to near-term inflationary effects for AI, before presenting the long-term advantages that could mitigate inflationary pressures,” Boivin remarked. “This complexity is yet to be fully acknowledged by the markets or central banks, based on our assessment.”
Notable ETFs with AI exposure include: IYW, FTEC, BOTZ, AIQ, and IGM.