Analysts at BlackRock (NYSE:) said in a note to clients on Monday that they remain bullish on technology stocks as a driver of market returns despite recent volatility.
The investment firm’s focus is on long-term structural shifts, such as artificial intelligence (AI), rather than short-term economic data, such as the consumer price index (CPI).
“We look at how a surprisingly soft US CPI report translates into PCE data,” BlackRock notes. “We think cooling inflation means the Fed can start cutting rates in the coming months.”
However, they downplay the significance of this data for tech stocks, stressing: “Looking past this short-term noise, we think tech will drive returns as the consensus expects large tech companies to deliver positive earnings results to the market,” the company says . They add that they “see pullbacks as an opportunity to invest in equities.”
BlackRock highlights the resilience of the technology sector: “Consensus forecasts for technology revenues have risen well above those for the rest of the index. Analysts see technology revenues growing 18% year-over-year in the second quarter, versus 2 % for the rest of the index.”
They recognize the potential volatility, especially around chipmakers’ earnings reports in late August, but view pullbacks as buying opportunities.
While BlackRock expects technology to maintain its earnings lead for a while, they see this declining as AI adoption accelerates growth in other sectors, emphasizing “building out AI-enabled sectors such as industrials, materials, energy and healthcare.”
This transformation outweighs the recent rally in small-cap stocks, which BlackRock says are “more sensitive to higher interest rates and not exposed to the drivers of the transformation we expect.”
Overall, BlackRock advises against overreacting to economic data such as the CPI. They remain confident in big tech’s ability to generate strong profits and recommend continuing to invest in the tech sector and the broader US market for long-term gains.
