BlackRock Investment Institute Videos

Market take

Weekly video_20260727

Natalie Gill

Senior Portfolio Strategist

BlackRock Investment Institute

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CAPITAL AT RISK. MARKETING MATERIAL.

Opening frame: What’s driving markets? Market take

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Title slide: Cheaper AI, new earnings questions

This earnings season comes with unusually high expectations. But we think the focus should not just be on earnings beats, but on whether today’s extraordinary profit levels can be sustained as cheaper AI models reshape the economics of AI - a key theme in our Midyear Outlook. And clues are likely to come from earnings call commentary rather than from headline results.

1: Exceptional AI earnings pace

Exceptional earnings growth – not re-rating - has driven U.S. equity returns this year, meaning valuations on a forward P/E basis don’t look so stretched if you believe this earnings strength is durable. That leaves investors looking beyond quarterly beats to what could sustain or erode the underlying driver of earnings strength, which has been the unprecedented speed and scale of the AI buildout.

2: Who captures economic rent?

The rising cost of enterprise AI, combined with the emergence of powerful Chinese AI models and other open-weight alternatives, raises a broader question: as competition intensifies, who will capture the economic rent? This earnings season is a chance to assess how companies will respond. We think the availability of cheaper AI models could create price pressure on other models and change the winners, but not the overall investment case. It reinforces our preference for AI infrastructure over the increasingly competitive model layer.

3: The changing landscape

This quarter’s headline earnings are unlikely to capture the true implications of the recent shift toward lower-cost and open-weight AI models. So, instead, investors should focus on hyperscaler capital spending plans, what management teams say on the changing competitive landscape and how companies across the broader economy are responding to the rising cost of AI.

Outro: Here’s our Market take We remain overweight the AI theme, but it requires selective and active positioning. Rather than trying to identify long-term winners in the increasingly competitive model layer, we prefer investing around AI scarcity such as power and data center infrastructure.

Closing frame: Read details: blackrock.com/weekly-commentary

BlackRock Bottom Line: 2024 Global outlook

Speaker: Wei Li, Global Chief Investment Strategist, BlackRock Investment Institute

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Higher interest rates and greater volatility define the new regime we’re in. In turn, that’s creating greater dispersion of returns.

We think investors will benefit from taking a more active approach to portfolios as we head into next year. 

Here’s our three investment themes for 2024: number one, managing macro risk; number two, steering portfolio outcomes; and number three, harnessing mega forces.

BlackRock Bottom Line open

Title: BlackRock Investment Institute 2024 global outlook

Our first theme is managing macro risk. Production constraints mean central banks face tougher trade-offs between inflation and growth – they can’t respond to faltering growth like before. This leads to a wider set of outcomes and a more uncertain macro outlook.

We don’t think investors should wait for the macro environment to improve. Instead, they should look to neutralize macro exposures or be very deliberate about which risks they take.

Our second theme is steering portfolio outcomes. We believe the new regime rewards an active approach to portfolios. Greater volatility and dispersion of returns create space for investment expertise to shine – that involves being more dynamic with indexing and alpha-seeking strategies, while staying selective.

Our third theme is harnessing mega forces. We see five structural shifts reshaping markets and driving returns now and in the future. We think they have become important portfolio building blocks on their own.

The bottom line is: Going into 2024 in the new regime, we want to put money to work. We believe investors should take a more active approach to their portfolios and be deliberate in taking portfolio risk.