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Investing.com – “We believe the strong gains in technology stocks were driven by the market’s focus on artificial intelligence (AI) and investors’ preference for quality given rising macroeconomic and market uncertainty.”
That’s how convinced they are about the rise of AI at BlackRock (NYSE:), highlighting that the sector is up 30% this year, nearly four times more than the rest of the S&P 500, according to LSEG Datastream.
“If we look to 2023, technology’s dominance becomes even more evident: the sector is up 100% since then, while the rest of the index is up 24%. AI has helped drive this outperformance by increasing corporate profits for technology companies, “As BlackRock analysts explain at BlackRock. Their latest weekly market commentary.
These experts echo analysts’ expectations, predicting a 20% increase in the next 12 months, which is much higher than expectations for the rest of the market. “So far, technology companies have delivered on lofty expectations: their profits rose 23% year-over-year in the first quarter. In a world where big forces – big structural shifts – drive returns now and in the future, we look to the short and long future of the impacts of artificial intelligence,” the company added. On profits.
Solid balance sheets
“Strong balance sheets are also a reason why we love technology, and are less concerned with valuation metrics. Free cash flow – excluding operating costs – as a share of sales is almost twice as high for technology as for the broader market, and technology has the largest share of sales,” BlackRock data indicates profit margins. Across sectors.
“In addition, many big technology names are highly profitable and have cash flow, allowing them to finance the construction of AI infrastructure such as data centers,” the analysts add.
United States versus Europe
“The search for such quality may have prompted investors to flock to US stocks more in recent weeks as their European counterparts retreat,” according to BlackRock.
They say: “Most of the decline in European stocks came after the results of the European Union elections and news of early elections in France.”
Risks?
What could stop the rise of technology stocks? According to BlackRock, “Markets may lose favor with the sector if hopes for AI diminish, as they feel corporate spending on AI has not paid off in boosting profits or margins.”
“Any regulatory changes that limit its adoption could also impact AI’s ability to continue to support the technology. In a less likely scenario, other sectors could outperform the technology if growth accelerates and inflation falls enough to allow the Fed to cut interest rates further.” “It is expected,” the experts add.
“Bottom line: Concentration in US technology stocks is a feature, not a bug, of the AI theme. We maintain a weight on US stocks over a six- to 12-month, tactical horizon and still favor the AI theme. We like industrials and healthcare With the broadening of stock gains.”
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