People are under-appreciating the impact of AI, argues Ben Powell, BlackRock's chief investment strategist for Apac.
One of BlackRock's core convictions is that investors should build portfolios around so-called mega forces, one of which is artificial intelligence (AI).
But there are some investors who fear that the rally in AI stocks has gone too far, too fast.
Ben Powell (main picture), BlackRock's chief investment strategist for Apac, thinks that many of these fears are overdone and reiterated his bullish stance towards AI stocks.
"We think the ultimate demand for silicon intelligence is going to continue to positively surprise," Powell told FSA in an interview.
One question plaguing investors' minds is whether the hundreds of billions of dollars being spent on AI capital expenditure is sustainable.
However, Powell believes the scepticism surrounding AI and increasing references to bubbles and investor overexcitement, may be a healthy sign given the pace of progress in the sector.
"When you're in euphoria, people tend to enjoy it," he said. "Whereas very few people seem to be enjoying this particular up move."
"I'm worried people are not excited enough," he added. "My concern is people are under-appreciating the impact of this technology."
"Artificial intelligence can be applied to everything at all times and all places, so I think you're going to see adoption from approximately everyone."
OpenAI just last week announced that ChatGPT reached a milestone of 800 million weekly active users, nearly four times the number of users from twelve months earlier.
Powell said that despite this tremendous growth, the consumer demand for AI technology "is still early stage" and companies are "still working out how to use it".
He said: "A lot of the companies that have adopted it are private or smaller companies. So I'm interested to see if we might be missing the revenue there is, even though its relatively smaller scale."
There has also been some concern about the increase in number of financing deals in the AI ecosystem, with some labelling them as "circular financing" where companies invest in its own customers to enable them to continue buying their products.
Last month, OpenAI last month entered into a $100bn deal with Nvidia to build more data centres, presumably with some of that powered by Nvidia's semiconductors.
Last month, AMD issued OpenAI a warrant to purchase up to a 10% stake in the chipmaker to further support its data centre buildout.
Powell said these types of deals are common in other industries and is not a cause for concern, especially where large amounts of capital expenditure are required.
"It is quite common for the big manufacturers to have interconnections with their suppliers," he said. "Auto manufacturers and auto components firms are deeply interlinked, including in financing."
"In the energy ecosystem, again, it's quite normal for the big players to have deep relationships with the different bits and pieces of their business that they want to outsource, but they have an interconnection."
"Maybe most directly comparable is the semiconductor industry, where these kind of financing inter-linkages in a highly capex intensive manufacturing business is actually quite normal."
Powell is instead "reassured" to hear how much concern there is around the AI part of the equity market, given the fundamental performance of their businesses.
"Some people have been surprised at the performance of these equities, but the underlying demand seems to be on a rolling basis much bigger than we thought last month, and it just continues to be true. We think there's more room to run," he said.
"They're genuinely making a lot of money and continue to surprise positively on revenues, margins, cash flow and earnings."