Why investment in AI is different than in the metaverse
The buzz around artificial intelligence has been compared to the buzz around the metaverse in 2021.
Even Nvidia (NVDA), the leader in AI, used to be the leader in metaverse stocks. But at Wednesday's BlackRock's 2023 Midyear Outlook Media Roundtable, Tony DeSpirito, CIO for Global Fundamental Equities, called out a key difference.
DeSpirito said, "The need is very real." "I think that shows a difference between what's going on in AI and what happened a year ago in the metaverse or virtual reality. There are sales...The income growth is just around the corner."
To prove DeSpirito's point, Nvidia started the most recent stock market rally led by AI by saying that the increase in its revenue forecast was due to "demand related to generative AI."
But for BlackRock, the AI change isn't just about Nvidia or semiconductors. BlackRock's midyear outlook 2023 came out on Wednesday, giving AI its first "Overweight" ranking as a "mega force." BlackRock says that geopolitical fragmentation, ageing populations, and shifting to a low-carbon economy are also "mega forces" driving markets.
In its midyear view, BlackRock's investment team said, "We think people don't understand how important data is for AI and possible winners." "Companies with much of their data can use it more quickly and easily to make new models. Some companies may be sitting on a gold mine of data, and new AI tools could analyse it and determine its worth.
Sam Ro from Tker asked the BlackRock investment team if the soaring stock prices of some of the best AI plays should be a worry. The BlackRock team said that it's best to be flexible.
BlackRock Global Chief Investment Strategist Wei Li said, "We don't think it's a good idea to get into AI right now because we already have exposure to these forces." "We're just telling people to stay invested because we think there's a real market for semiconductor chips. There is a real rise in sales and income."
Li also said that while mega-cap tech's exposure to AI helped most investors join the AI rally at the start of 2023, investors should make an "explicit" choice to include AI exposure in their portfolios going forward.
DeSpirito says that there are also many ways to play this theme. There will be companies that use AI to come up with new ways to make money. Others will have to add AI to their business at an extra cost. In what DeSpirito calls a "stock-picking" market, it will be important to determine if AI is increasing income or just adding to the cost structure.
Because, as DeSpirito says, the AI story is the same as other business stories. It's all about making more money over time.
"The good thing about making a lot of money is that you have time on your side," said DeSpirito. "The more time you hold on to a company, the more profits you get over time."