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AI has boosted the S&P 500 this year. Don’t expect that to change any time soon, BlackRock says.
The AI giant that powered the S&P 500 (^GSPC) this year’s recovery should continue to boost returns over the next six to 12 months, according to BlackRock analysts.
“You can still argue that there is risk,” Wei Li, chief global investment strategist at BlackRock Investment Institute, said during a roundtable with reporters on Tuesday.
The reasons why Li and his team are bullish on the stock include the huge capital expenditure in AI and growing demand for low-carbon energy. Investment in AI data centers, for example, is expected to increase by 60%-100% annually in the coming years, Li said.
“When we add up all this capital spending, we arrive at numbers 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, while the S&P 500 has hit 36 record highs this year.
In the first half of 2024, the S&P 500 gained 14.5%, with a handful of stocks leading these gains. Notably, AI heavyweight Nvidia (NVDA) accounted for about a third of the S&P 500’s gains during the first six months of the year, while a outperformance in quarterly results of large-cap technology companies contributed to the S&P 500’s year-over-year earnings growth.
However, BlackRock strategists don’t see the concentration of stock performance as a problem, as megacaps have delivered gains. They expect big tech companies to invest heavily in building AI, and chipmakers and energy and utility companies to continue to outperform.
“We believe markets are likely to continue rewarding perceived winners in AI over the next six to 12 months, regardless of where the transformation leads in the longer term,” the asset management firm’s Midyear Global Outlook 2024 report said.
Investors should consider “taking risk, moving away from cash and really thinking about areas where there are opportunities,” said Gargi Chaudhuri, chief investment and portfolio strategist for the Americas at BlackRock.
These sectors include Energy, Healthcare, and Utilities — sectors that are expected to benefit from the AI boom.
The growing need to power everything from data centers to chip factories it sent the S&P 500 Utilities ETF (XLU) an increase of more than 8% year-to-date, compared with a loss of around 7% in 2023.
Strategists say risks that could slow or halt the development and adoption of AI include potential policy and regulatory challenges, rules on AI use and supply bottlenecks amid growing demand for metals and minerals such as copper, aluminum and lithium.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.