Midyear Outlooks Highlight Impact of AI

Artificial intelligence (AI) stocks boosted gains in the US public equity market in the first half of 2024, despite macroeconomic volatility.

BlackRock’s Q3 2024 equity market outlook highlighted that AI stocks, primarily stocks in the ‘Magnificent Seven’, helped US stocks hold onto gains amid stubbornly high inflation rates and reduced expectations for the Federal Reserve to cut rates.

The firm projected that the earnings-growth gap between the ‘Magnificent Seven’ and the other 493 stocks in the S&P 500 will narrow later this year, offering opportunities for stock selection for investors.

It said that earnings growth for value stocks was “particularly interesting”  once the index’s AI-supercharged top stock was removed, which skewed averages.

Tony DeSpirito, BlackRock’s global CIO for fundamental equities, said:  “A market in which earnings growth broadens beyond the prevailing leaders ― creating dispersion in the process ― is a stock picker’s paradise.”

The firm also noted that it was avoiding investments in large US-based drug manufacturers, despite its overall preference for healthcare. This is due to large-cap pharmaceutical companies being reliant on returns from their products only up until the patent expires.

It predicted that several US pharma companies will lose patent protection on up to 70% of their revenue by 2030.

BlackRock noted that there were further opportunities outside the accepted AI winners, such as companies that own the data used to train AI models and those that provide memory for storing it.

As the AI market continues to swell, further infrastructure will be needed to support the technology, such as data center cooling systems and AI-ready PCs.