BlackRock Investment Institute Videos

Market take

Weekly video_20260217

Natalie Gill

Portfolio Strategist, BlackRock Investment Institute

Opening frame: What’s driving markets? Market take

Camera frame

The recent software selloff marks a dramatic shift in market perception around the AI narrative. The debate is no longer whether AI is real; now, markets are increasingly pricing in its potential to disrupt entire business models.

We think the sorting of winners and losers we see today reinforces AI’s massive buildout - and the leverage needed to finance it - that’s blurred the line between the micro and macro

Title slide: Software selloff shows AI acceleration

1: A market shift in the AI narrative

Last year, markets debated whether AI was real. Today, markets are pricing in the effect of AI as an active threat to business models.

As a result, the focus is shifting to finding companies exposed to AI disruption and sorting out the potential winners and losers. The phenomenon is rippling through sectors, but recent moves indicate that markets see software as ground zero.

The change in the AI narrative is showing up in the sharp performance divergence within tech: while software providers have underperformed in the past six months, sectors such as semiconductors and hardware have advanced.

2: Sorting winners and losers

We think we are still firmly in the AI buildout phase. Mega cap tech companies are spending heavily on chips and power infrastructure, while indicating more to come – a key reason why we like infrastructure.

What has seemingly changed is the market’s focus, which is now on how adoption will translate into real revenues and profits. This search for winners and losers means its prime time for active investing – something we emphasized in our 2026 Global Outlook.

And while software stocks have been hard hit amid the indiscriminate selloff, we see more nuance to the moves.

Not all software companies are created equal. Companies with proprietary data or strong customer relationships could leverage the AI disruption.

3: (Still) leveraging up

As the sorting process takes hold, the AI builders are locking in long-term financing to fund capital spending plans, like Alphabet’s plans to offer a 100-year sterling bond. But all this corporate borrowing adds supply to bond markets that are struggling with large, public deficits.

Greater leverage exacerbates any upward pressure on interest rates. This pressure could cool if AI-led productivity gains help the U.S. break out of its long-term 2% growth trend. We see a credible path for this to happen someday, but recent U.S. jobs data does not yet show that the sectors exposed to AI are cutting hiring.

These concerns keep us underweight U.S. Treasuries. We’re selective in credit, where we prefer high yield and European bonds as AI builders have largely tapped the U.S. investment grade market.

Outro: Here’s our Market take

We’re still in the buildout phase of the AI theme, though markets are now focused on identifying potential losers. We favor U.S. equities, but think selectivity is crucial. We also prefer select credit opportunities over long-duration U.S. Treasuries.

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

BlackRock Bottom Line: 2024 Global outlook

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

Script:

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.