The artificial intelligence hype has drawn comparisons to the Metaverse hype of 2021.
Even the AI’s flagship, Nvidia (NVDA), was once the standard-bearer of Metaverse stocks. Speaking at BlackRock’s 2023 Midyear Outlook Media Roundtable on Wednesday, however, Tony DeSpirito, BlackRock’s CIO for Global Fundamental Equities, pointed out a key difference.
“The demand is really real,” DeSpirito said. “I think that’s in contrast to what’s going on in AI, with the metaverse from a year ago, or virtual reality. Orders are in… Earnings growth is coming.”
DeSpirito opined that Nvidia started the recent AI-led stock rally by attributing its increase in revenue guidance to “demand related to generative AI.”
But for BlackRock, the AI opportunity isn’t just about that Nvidia and it’s not just about that Semiconductor. BlackRock published its 2023 half-year outlook on Wednesday, announcing an overweight position in AI as a “mega-power”. Other themes BlackRock describes as mega forces driving markets include geopolitical fragmentation, aging populations and the transition to a low-carbon economy.
“We believe the importance of data for AI and potential winners is underestimated,” BlackRock’s investment team wrote in its half-year outlook. “Companies with large amounts of proprietary data have the opportunity to use large amounts of data more quickly and easily to create innovative models. New AI tools could analyze and unlock the value of the data goldmine some companies may be sitting on.”
When asked by Tker’s Sam Ro if skyrocketing share prices should be a concern for some of the top AI companies, BlackRock’s investment team replied that it’s best to be flexible.
“We’re not advocating going into AI at this point because we’re already facing such forces,” said Wei Li, BlackRock’s global chief investment strategist. “We’re just arguing to stay invested because we believe demand for semiconductor chips is high [is] very real. The sales and earnings growth is very real.”
The story goes on
Li added that while the AI exposure of mega-cap tech companies has helped most investors participate in the AI rally at the start of 2023, investors should make an “explicit” decision going forward add an AI engagement to their portfolio.
According to DeSpirito, there are also multiple ways to play this theme. There will be companies that build new business models around AI. There will be others who simply need to include AI as an additional cost to their business. The question of whether AI will drive profits, rather than just becoming another part of the cost structure, will be critical in what DeSpirito believes is a “stock-picking” market.
Because, as DeSpirito points out, the AI story is no different than other investment themes. It’s about increasing profitability.
“The beauty of high profitability is that time is on your side,” DeSpirito said. “The longer you hold the company, the more profits accrue to shareholders.” over time.”
The ChatGPT logo and the words AI Artificial Intelligence can be seen in this image dated May 4, 2023. Portal/Dado Ruvic/Illustration
Josh Schafer is a reporter for Yahoo Finance. Follow him on Twitter @_JoshSchafer
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