According to the BlackRock Investment Institute, the winners of the artificial intelligence race will primarily be U.S. stocks, with only selected stocks from China surviving. The firm maintained a neutral view on Chinese stocks in Monday’s report, but remained overweight on the U.S. “China has advantages in various parts of the value chain, including manufacturing and batteries. However, manufacturing strength alone does not guarantee attractive equity returns, reinforcing our preference for active investing over broad regional investing,” BlackRock said. The Nasdaq Composite Index has risen more than 12% since the beginning of the year, while the ChiNext index of mainland Chinese-listed stocks, mainly tech stocks, has risen more than 20%. But more broadly, Chinese stocks fell, with the MSCI China index down more than 10%, while major U.S. indexes rose more than 10%. Amid U.S. restrictions on high-end technology, the Chinese government is supporting domestic AI development and implementing policies to promote its use across the industry. However, it is less clear how companies will be able to generate profits against a backdrop of slowing economic growth and fierce competition. “Cheap open source AI may drive adoption, but it does not necessarily translate into profitability for AI providers,” the BlackRock report states. Analysts “see an opportunity for physical AI” where the technology is integrated into hardware such as robots. This stock-focused approach stands in contrast to expectations that the rally in South Korea and Taiwan’s stock markets, dominated by local semiconductor giants, will spill over into China more broadly. David Chao, Invesco’s Asia-Pacific global market strategist, told reporters last month that he expects more foreign investors to focus on Chinese tech companies’ revenue and export growth in the coming years. He noted that Latin American pension funds are already increasing their interest in China’s high-tech sector. But as investors around the world consider whether AI itself has become a bubble, BlackRock believes it will buy stocks with few industry inputs. These include infrastructure projects from China to Latin America, the report said. The US remains BlackRock’s favorite. “While it is difficult to identify the ultimate winners in AI, we believe there are many winners in the United States given its leadership in chips, frontier AI models, and deep capital markets.”
