Weekly market commentary | BlackRock Investment Institute - EUROPE SAYS
Market takeWeekly video_20260727Natalie GillSenior Portfolio StrategistBlackRock Investment InstituteHeader:CAPITAL AT RISK. MARKETING MATERIAL. Opening frame: What’s driving markets? Market takeCamera. . .
Market takeWeekly video_20260727Natalie GillSenior Portfolio StrategistBlackRock Investment InstituteHeader:CAPITAL AT RISK. MARKETING MATERIAL. Opening frame: What’s driving markets? Market takeCamera frameTitle slide: Cheaper AI, new earnings questionsThis earnings season comes with unusually high expectations. But we think the focus should not just be on earnings beats, but on whether today’s extraordinary profit levels can be sustained as cheaper AI models reshape the economics of AI – a key theme in our Midyear Outlook. And clues are likely to come from earnings call commentary rather than from headline results. 1: Exceptional AI earnings paceExceptional earnings growth – not re-rating – has driven U. S. equity returns this year, meaning valuations on a forward P/E basis don’t look so stretched if you believe this earnings strength is durable. That leaves investors looking beyond quarterly beats to what could sustain or erode the underlying driver of earnings strength, which has been the unprecedented speed and scale of the AI buildout. 2: Who captures economic rent?The rising cost of enterprise AI, combined with the emergence of powerful Chinese AI models and other open-weight alternatives, raises a broader question: as competition intensifies, who will capture the economic rent? This earnings season is a chance to assess how companies will respond. We think the availability of cheaper AI models could create price pressure on other models and change the winners, but not the overall investment case. It reinforces our preference for AI infrastructure over the increasingly competitive model layer. 3: The changing landscapeThis quarter’s headline earnings are unlikely to capture the true implications of the recent shift toward lower-cost and open-weight AI models. So, instead, investors should focus on hyperscaler capital spending plans, what management teams say on the changing competitive landscape and how companies across the broader economy are responding to the rising cost of AI. Outro: Here’s our Market take We remain overweight the AI theme, but it requires selective and active positioning. Rather than trying to identify long-term winners in the increasingly competitive model layer, we prefer investing around AI scarcity such as power and data center infrastructure. Closing frame: Read details: blackrock. com/weekly-commentaryTags:EconomyEconomy of EUeconomy of europeEconomy of European UnionEconomy of the EUEconomy of the European UnionEU economyEuropeEurope MarketsEuropean marketsmarkets