BlackRock Inc., the world’s most substantial asset manager, has thrown its weight behind the artificial intelligence (AI) boom, asserting it to be a potential ‘mega force’. With the tech-heavy Nasdaq 100 index already experiencing a record-setting first half of the year due to an AI-powered rally, BlackRock has joined the enthusiasm.
The Bullish Call on AI
The company has singled out semiconductor manufacturers, firms with vast data sets, and businesses with a high degree of automation potential as the most probable beneficiaries of the AI surge. BlackRock’s research team highlighted in their midyear report, “We implement an overweight to AI as a mega force. New AI tools could analyse and unlock the value of the data gold mine some companies may be sitting on.”
Preparing for Market Fluctuations
Despite the optimistic stance on AI, BlackRock strategists are girding themselves for a slight recession this year. As a result, a short-term downturn in developed-nation equities is anticipated. However, they contend that stock prices have not yet fallen enough to reflect these risks. Selective tech investments are on the agenda, a move which dovetails with a nearly 40% rally in the Nasdaq 100.
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Dissecting the AI Boom
Earlier this year, investors were bracing for a credit crunch, fuelled by the collapse of US regional banks and an inverted Treasury yield curve. However, stronger than expected economic data and corporate earnings have proved to be a panacea, with AI propelling a revival in the stock market. “We think this unusual equity market shows a mega force like AI can be a big driver of returns even when the macro environment is not your friend,” said the BlackRock report.
A Long-Term View
BlackRock sees potential in short-dated US bonds, citing the likelihood of continued high interest rates. The Federal Reserve is anticipated to hike rates to 5.75% and maintain them at this level until the second half of 2024. The central bank is expected to sustain tight policy in the long term to handle persistent inflationary pressures, prompting BlackRock to have a strategic “maximum overweight” on inflation-linked bonds.
The Power of AI: Nvidia Corp.
It is worth noting that BlackRock is already heavily invested in the AI sector, owning over 7% of Nvidia Corp.’s stock. Nvidia is a global leader in AI and a leading light in the semiconductor industry. Nvidia’s chips are crucial components in many AI systems, making the company a strategic investment for BlackRock in the AI landscape.
The AI boom, combined with strategic moves from investment powerhouses like BlackRock, promises a fascinating future for this rapidly evolving field.
