Not even near midpoint of AI spending cycle, strategist says

Kate Moore, BlackRock’s global allocation fund head of thematic strategy, sits down with Market Domination hosts Josh Lipton and Julie Hyman to check in on the artificial intelligence (AI) investing play and what to expect of companies’ AI spending going forward.

The strategist tells Yahoo Finance, “The price movement of companies that are direct beneficiaries of the first wave of AI spending has been pretty strong, but I don't think that we are anywhere near the midpoint in terms of the AI spending cycle. I would still put us in the first leg of it, and that is because most of the spending, as we know, has been by hyperscalers and technology companies,. We're starting to get a broadening out of other industries, really map out their spending and investment plans.”

She says, “It's going to take probably a couple of quarters before everyone wants to know how much is going to get monetized and what it's going to look like a couple quarters before we really have a great sense.”

While some investors may be ready to see AI spending monetize, Moore suggests investing in AI may be more of a long play. She says, “I would make the same argument with any kind of infrastructure investment, whether we're talking about digital infrastructure in this case or physical infrastructure. Of course it takes some time of spending in order to create the situation or the framework that allows growth to happen.”

Moore adds, “These hyperscalers know what they're doing. They already feel like the spend is a small amount of their potential total return…I think this is a space that you want to stay long in. And I would use opportunities and pullbacks like particularly on the hardware side, to kind of re-up your positions, and I think there's more opportunity on the software side now as well."

AI capital expenditures (CapEx) are yet to pay off, but Moore highlights the tech and its applications are quickly evolving. “The number of use cases that are coming up from companies across many industries is increasing, even by the week.”

When asked how corporate tax hikes could affect companies' AI spending, Moore says she doesn’t think it will. “If you look at the corporate tax cuts that took place in 2017, 18, it only contributed about 40 basis points to net margins over the course of the subsequent years; companies, especially US large-cap companies, are outstanding at managing their tax burden. And that's a really polite way of saying don't bet against U.S. companies. And their ability to deliver on the bottom line.”

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Naomi Buchanan.