Global investment titan BlackRock, which manages some $10 trillion in assets, has declared artificial intelligence a “mega force” that could create significant returns for investors in today’s “unusual” market.
In its mid-year outlook report, the BlackRock Investment Institute detailed their thesis for increased investment in AI — pointing to multiple “disruptive” themes that could see the sector grow rapidly over the coming years.
S&P market cap vs relative performance from 1990. Source: BlackRock.The report drew special attention to the fact that gains in the S&P 500 — the index that tracks the 500 largest companies in the United States — have become increasingly concentrated in a handful of tech stocks. The firm says investment in AI is a good way to capitalize on this concentration.
"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."To BlackRock’s investment team, the most obvious “benefit” of AI lies in automation. While they admitted white-collar jobs are at an “increased risk” of being automated away, it said the resulting cost savings could significantly boost profit margins, especially for companies with high staff costs and an abundance of easily-automated tasks.
The team added that the nascent tech could prove to be a boon for companies that are currently sitting on a “gold mine” of proprietary data — with AI-powered tools allowing firms to leverage dormant information into “innovative” new models.
The report also listed the global push towards low-carbon economies, aging populations, and a rapidly-evolving financial system as key drivers of growth in the coming decade.
BlackRock isn’t alone in giving more airtime to AI. In a June 28 tweet, Matt Huang, the CEO of crypto investment firm Paradigm, said the rapid and varying developments in field of AI are simply “too interesting to ignore."
Paradigm has never been more dedicated to crypto.
When Fred and I started Paradigm five years ago, there was no master plan. What we had was a shared curiosity for the future, deep conviction in crypto, and a desire to advance the frontier of what’s possible.
Our best decision…
— Matt Huang (@matthuang) June 27, 2023Still, not all commentators are convinced by a bullish AI investment thesis.
Related: Google says its next AI ‘Gemini’ will be more powerful than ChatGPT
Macro-finance commentator @Financelot told his 90,000 followers on Twitter that the AI boom — which has seen shares in GPU-manufacturer Nvidia skyrocket by more than 180% in six months — is actually being fueled largely by demand for specific AI-focused computing chips.
The AI narrative was used to mask the true source of chip demand coming from China front-running U.S. export restrictions. That's why chips were hot but memory (DRAM & NAND) remained in decline.
Once the U.S. passes the restrictions this whole "AI" narrative implodes overnight. https://t.co/cSvHVTinRC
— Financelot (@FinanceLancelot) June 29, 2023In his view, once the U.S. implements export restrictions on these chips, the share prices of AI-related companies will falter.
While there’s bullishness for AI, recent weeks have seen the investment giant turn its gaze to Bitcoin. On June 15 the firm submitted an application to the Securities and Exchange Commission (SEC) for a spot Bitcoin Exchange Traded Fund (ETF).
If the application is successful, it will be the first spot Bitcoin trust product to be approved by the regulator. Senior investment analysts from bloomberg have pinned Blackrock’s chance of an approval at 50%.
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