Aug 15, 2024 Equity
Artificial Intelligence (AI) is showing up everywhere you turn, from self-driving vehicles to summarized product reviews. AI thrives on data, and we live in an increasingly digital world. In fact, AI market size is expected to reach $407 billion by 2027,1 and BlackRock believes AI could disrupt the global economy over the next decade. (Learn more about digital disruption and AI).
Although the concept of AI has been around for decades, recent trends of advancements in semiconductor breakthroughs, data proliferation, and software design have converged to bring the field to an inflection point. AI has transcended its “buzzword status,” with businesses across sectors looking to integrate the technology to grow new revenue streams or improve efficiencies.
Share of industry employment exposed to automation in the U.S.
Source: Goldman Sachs, Top of Mind, “Generative AI, Hype or Truly Transformative.” As of July 10, 2023.
For illustrative purposes only.
Chart description: Bar chart showing different industries and the percentage by which they are exposed to automation in the U.S. Highlighting that Office/Admin industries and legal industries are very exposed while maintenance type roles are hardly exposed.
Yet despite the recent attention on AI, we believe the AI theme is still in its early stages, presenting investment opportunities for long-term investors.
Certain areas of the AI space continue to attract more headline attention than others, like the select group of mega-cap tech companies known as the "Magnificent 7”.
Focusing on the Mag 7 illustrates the potential emphasis on “picking a winner now” when investing in AI. The S&P Technology Select Sector Index has exhibited notable disparities between top and bottom performers. The difference between top-decile and bottom-decile technology stocks year-to-date is about 47.4%.2 Long-term thematic AI investing is not just about investing in today’s largest tech stocks it is about identifying underappreciated areas within AI that are well-positioned for long-term growth and going beyond today’s market leaders.
The AI value chain includes companies and industries directly contributing to AI’s growth, including software, hardware, and infrastructure. A few key examples include:
Did you know?
Worldwide AI chip revenue is projected to increase to $71 billion in 2024, marking a 33% increase from 2023.³
Did you know?
The U.S. data center market saw the largest pricing increase of all commercial real estate assets in 2023.⁴
Did you know?
AI software spending is predicted to grow from $124 billion in 2022 to approximately $298 billion by 2027.⁵
Did you know?
It is estimated that over 80% of enterprises will have used generative AI by 2026, up from less than 5% in 2023 — creating demand for AI-as-a-service providers.⁶
These categories represent the diverse and evolving landscape of AI. By owning the full value chain of AI industries, investors can seek to capture a broader spectrum of companies and reduce the risk of overreliance on a few dominant players. This approach may allow for exposure to both established and emerging innovators and enablers. A thematic ETF focused on these areas can offer a streamlined approach to AI.
Investors interested in capturing themes across the AI value chain may consider the iShares Future AI & Tech ETF (ARTY).7
AI is still at the early stages of one of the potentially most powerful technological revolutions since the birth of the Internet. AI may introduce new efficiencies and revenue streams across sectors of the economy. As this technology matures, investors can turn to AI to complement the core exposure of their portfolios or to replace their traditional tech exposure. AI-focused ETFs can offer a streamlined way to tap into potential diverse opportunities with a single trade.
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1 Source: Forbes, “24 Top AI Statistics and Trends in 2024.” June 15, 2024.
2 Source: Morningstar, as of 7/31/2024. Based on stocks in the S&P Technology Select Sector Index. Top decile funds are up 37.3% and bottom decile funds are down –10.1%.
3 Source: Gartner, “Gartner Forecasts Worldwide AI Chips Revenue to Grow 33% in 2024.” As of May 29, 2024. Forward-looking estimates may not come to pass.
4 Source: CBRE “North American Data Center Pricing Nears Record Highs, Driven by Strong Demand and Limited Availability”, March 7, 2024.
5 Source: Gartner “Forecast Analysis: AI Software Market by Verticl Industry, 2023–2027”, March 27, 2024. Forward-looking estimates may not come to pass.
6 Source: Gartner, Catherine Howley, “Gartner Says More Than 80% of Enterprises Will Have Used Generative AI APIs or Deployed Generative AI-Enabled Applications by 2026.” As of October 11, 2023. Forward-looking estimates may not come to pass.
7 This fund was previously known as iShares Robotic and Artificial Intelligence Multisector ETF (IRBO). On August 12th 2024, the fund was renamed iShares Future & Tech ETF (ARTY) and tracks a new underlying index, the Morningstar® Global Artificial Intelligence Select Index℠ and will cease to track the NYSE FactSet Global Robotics and Artificial Intelligence Index. The fund’s new investment objective will be to seek to track the investment results of an index composed of U.S. and non-U.S. companies that provide products and services that are expected to contribute to artificial intelligence (AI) technologies in areas including generative AI, AI data and infrastructure, AI software, and AI services.
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