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The hype surrounding artificial intelligence has garnered comparisons to the metaverse hype of 2021.
Even AI’s banner company, Nvidia (NVDA), was once the flag bearer for metaverse stocks. But at BlackRock’s 2023 Midyear Outlook Media Roundtable on Wednesday, BlackRock’s CIO for Global Fundamental Equities Tony DeSpirito pointed out a key difference.
“The demand is really real,” DeSpirito said. “I think that contrasts what’s going on in AI versus the metaverse of a year ago or virtual reality. The orders are there…The earnings growth is just coming.”
To DeSpirito’s point, Nvidia started the latest AI-led rally in stocks by attributing its revenue guidance boost to “demand related to generative AI.”
But for BlackRock, the AI opportunity is not just about Nvidia and it’s not just about semiconductors. BlackRock released its 2023 midyear outlook on Wednesday initiating an Overweight rating on AI as a “mega force.” Other topics BlackRock labels as mega forces driving markets include geopolitical fragmentation, aging populations, and the low-carbon transition.
“We think the importance of data for AI and potential winners is underappreciated,” BlackRock’s investment team wrote in its midyear outlook. “Companies with vast sets of proprietary data have the ability to more quickly and easily leverage a large amount of data to create innovative models. New AI tools could analyze and unlock the value of the data gold mine some companies may be sitting on.”
When asked by Tker’s Sam Ro if the skyrocketing stock prices for some of the top AI plays should be a concern, BlackRock’s investment team said it’s best to be nimble.
“We’re not advocating getting into AI at this juncture because we already have exposure to these kinds of forces,” BlackRock Global Chief Investment Strategist Wei Li said. “We’re just advocating staying invested because we think demand for semiconductor chips [is] very real. The growth in sales and revenues are very real.”
Li added that while megacap tech’s exposure to AI helped most investors get involved in the AI rally to start 2023, investors should be making an “explicit” decision to include AI exposure in their portfolio moving forward.
There are several ways to play that theme too, according to DeSpirito. There will be companies that build new business models around AI. There will be others who merely must incorporate AI as an added cost to their business. Sifting through whether AI is boosting profits versus merely becoming another piece of the cost structure will be key in what DeSpirito believes is a “stock-picking” market.
Because, as DeSpirito points out, the AI story isn’t any different than other investment themes. It’s all about compounding profitability.
“The nice thing about high profitability is that time is on your side,” DeSpirito said. “The longer you hold the company, the more the profits accrue to shareholders over time.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on Twitter @_JoshSchafer
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