The AI juggernauts that have powered the S&P 500 (^GSPC) rally this year are expected to continue to drive returns over the next 6 to 12 months, according to BlackRock analysts.
“The argument for taking risk still holds true,” Wei Li, global chief investment strategist at BlackRock Investment Institute, said at a media roundtable on Tuesday.
Among the reasons Li and her team are bullish on U.S. stocks are huge capital investments in AI by companies and growing demand for low-carbon energy: Investments in AI data centers, for example, are expected to grow 60% to 100% annually over the next few years, Li said.
“When you add all this capital investment spending together, it amounts to a figure rarely seen in history, comparable to the Industrial Revolution,” she said.
As of early July, a record $6.15 trillion was sitting in money market funds, and the S&P 500 has set 36 new record highs this year.
The broad index rose nearly 15% in the first half of 2024, with a handful of stocks driving the gains. Notably, AI giant Nvidia (NVDA) accounted for nearly a third of the S&P 500’s gains in the first half of the year, with strong quarterly earnings from big tech companies helping drive year-over-year growth in the index’s overall gains.
But BlackRock strategists don’t think concentrated stock performance is an issue, as large-cap stocks are reaping the benefits. They expect big technology companies that are investing heavily in building AI, as well as semiconductor makers and companies that supply raw materials like energy and utilities, to continue to do well.
“Regardless of where transformation leads in the longer term, we believe the market is likely to continue to benefit companies seen as AI winners over the next 6 to 12 months,” the asset manager’s Medium-Term Global Outlook to 2024 said.
Gargi Chaudhri, chief investment and portfolio strategist for the Americas at BlackRock Investment Institute, said investors should consider “taking on risk, moving away from cash and really thinking about pockets of opportunity.”
These sectors include energy, healthcare, industrials, materials and utilities, all of which are expected to benefit from the AI boom.
The growing need to power everything from data centers to semiconductor manufacturing plants has helped the S&P 500 Utilities ETF (XLU) rise more than 8% year to date but is down about 7% in 2023.
Risks that could slow or disrupt the build-out and adoption of AI include potential challenges from policy and regulation, rules on the use of artificial intelligence, and supply bottlenecks due to increased demand for metals and minerals such as copper, aluminum and lithium, the strategists said.
Inés Ferré is a senior business reporter at Yahoo Finance. Follow her on X. Follow.