AI-Fueled Stocks Rally Has Further to Go, BlackRock's Li Says

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Bloomberg Apr 26 03:24 · 9945 Views

BlackRock Global Chief Investment Strategist Wei Li comments on the earnings season, the impact of artificial intelligence and how it plays into the 2024 equities rally. "I think there is greater runway for AI adoption to not only play out further in this Magnificent Seven, but beyond the tech sector in other sectors like healthcare, financials and industrials as well," Li said on Bloomberg Television.

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Transcript

  • 00:00 I think the big picture for earnings is that we have had an incredible start of the year where
  • 00:08 earnings upside surprises
  • 00:11 so far have enabled equities to offset the negative impact from rate repricing.
  • 00:18 So the bar for earnings to continue supporting market sentiment and to continue surprising to the upside has risen.
  • 00:27 You look at
  • 00:28 EPS growth expectation, U.S.
  • 00:30 equity market is 11% this year which is higher than the
  • 00:33 historical average of 7%.
  • 00:35 So
  • 00:36 the the bar has certainly certainly reason and that is the length through which we need to
  • 00:41 review incoming earning reports.
  • 00:44 So what has happened
  • 00:46 so far?
  • 00:47 You talked about the banks, some of the
  • 00:49 big tech
  • 00:50 as well and this week is very, very
  • 00:52 busy I think the fact that so.
  • 00:55 So far there has been greater focus on guidance
  • 00:59 rather.
  • 01:00 Than top line misses Obits
  • 01:03 has
  • 01:04 indicated to us this is still a very forward-looking market rather than just looking back at what has been delivered.
  • 01:11 But it's also notable that misses have been more punished than previous
  • 01:16 than in previous season, again
  • 01:18 showing that the bar has reason.
  • 01:20 So earnings is critical in understanding if there is further momentum to go in this equity market.
  • 01:28 Wait, there's nothing hugely disappointing actually in what meta did, but there was a disappointment for investors because they had such high hopes.
  • 01:36 Does that mean you're recalibrating, I guess, your exposure to some of the Magnificent 7 or AI in general or is it just about being patient?
  • 01:44 Well, if you talk about Magnificent 7 more broadly, there is another name
  • 01:49 in Magnificent 7 that reported misses in terms of the headline, but actually guided up
  • 01:55 and their expectations and I was rewarded
  • 01:58 handsomely earlier
  • 01:59 in the week, right.
  • 02:00 So ultimately we're talking about an environment where when it comes to evaluating the potential for AI, there is greater focus.
  • 02:07 If you look at how markets have been reacting
  • 02:10 on the guidance rather than on the
  • 02:13 top line misses or beats.
  • 02:15 This is what we notice in this particular season
  • 02:18 which
  • 02:19 shows to us that this is still a very forward-looking
  • 02:23 market.
  • 02:24 And I think there is greater kind of runway for AI adoption to not only kind of play out further in this magnificent 7, but
  • 02:32 beyond
  • 02:34 the tech sector.
  • 02:35 Other sectors like healthcare, financials and industrials as well, which are the sectors that
  • 02:39 that we.
  • 02:40 In terms of valuation,
  • 02:42 you know, people look at how wow these names have done and in intuitively they're like, OK, this is too expensive to getting at this level.
  • 02:50 But because actually earnings have
  • 02:53 an aggregate over the.
  • 02:55 The last 1218 months or so really comes through
  • 02:58 in terms of valuations, you know like magnificent 790% of their total return the last 12 months can be attributed to earnings coming through.
  • 03:09 Valuations have not become
  • 03:11 more expensive versus one year ago and that's the big picture.
  • 03:14 I think sometimes that goes unnoticed in the context of the
  • 03:18 maturity, price appreciation.
  • 03:20 For all these reasons, we still like the tech theme.
  • 03:24 We think that there is more
  • 03:25 to play out.