BlackRock Predicts AI Boom, Software Sector Poised for 20%+ Growth

BlackRock's global technology team has forecasted that the era of artificial intelligence (AI) is just beginning, with the next explosive frontier industry on the horizon. The team's basic stock manager highlighted that software companies are currently building bridges between AI and both enterprise and daily life. This development is occurring at a rapid pace, despite concerns about the domestic economy and geopolitical tensions. The manager emphasized that AI's growth is accelerating, and its integration into various sectors is becoming increasingly seamless. This prediction underscores the potential for AI to revolutionize multiple industries, driving innovation and efficiency.

The manager pointed out that companies deploying AI are in a favorable position to benefit from this expansion. The manager questioned whether AI has already transformed all the sectors and industries it can, suggesting that the technology is still in its early stages. The manager also noted that AI's capabilities are rapidly improving, indicating that more use cases and efficiencies are yet to be discovered. Over time, the costs of developing and running AI are expected to decrease.

Regarding NVIDIA, the manager believes the company is at the center of AI development, particularly due to the global demand for its AI chips to power various applications. While the manager is optimistic about NVIDIA's prospects, they are more excited about the opportunities that the software sector may present as more companies integrate AI into their products.

The manager identified two main categories in the software sector: enterprise-facing and consumer-facing applications. Examples of consumer-facing suppliers include Intuit Inc., a tax software provider, and Duolingo Inc., a language education company. Enterprise software companies include Salesforce Inc., which provides customer relationship management products, and Autodesk, which specializes in design technology.

BlackRock's basic stock technology team outlined several key reasons to focus on software companies during the early stages of the AI boom. Firstly, these companies have the opportunity to enhance their competitive advantage by acquiring or building proprietary AI systems and maintaining unique datasets. Secondly, as the software industry matures, emerging AI technologies can serve every sector. The core of the burgeoning AI demand will be AI tools capable of making decisions and taking actions. These tools can be used to manage and improve inventory, assist developers in writing code, help doctors care for patients, and even aid in architectural design.

Additionally, software companies can more easily keep up with the AI trend because they can quickly scale to meet demand, as most software companies rely on central cloud storage rather than expensive hardware. This also means they can expand their customer base without increasing operational costs, resulting in higher profit margins. Lastly, software companies tend to have recurring revenue, as most operate on a subscription-based model, either monthly or annually. This reduces investment risk by providing more predictability in forecasting a company's future cash flows.