BlackRock Fundamental Equities
5/19/2025
The investment opportunity in artificial intelligence (AI) may appear to be carried by a small group of mega-cap stocks. Yet there is a great deal of activity bubbling below the popular radar.
This Q&A with Tony Kim, head of the Fundamental Equities Global Technology team at BlackRock. explores the current state of AI and what investors may consider now and in the future.
How much has AI taken over in the last decade?
In the prior years, AI was more a tool ? something in the background. Operationally a few companies were using it.
Now, AI is at the forefront of every company, and it's really changing the foundations of the software industry and the semiconductor industry. It’s cascading to the power and energy industry. It’s also changing the very products and services that all tech companies are building to. That’s the sea change, and it’s been remarkable.
How has this change altered the investment opportunity set?
AI has fundamentally redefined the technology “stack,” the hardware, software and data that come together to perform specific tasks or functions. The stack builds from the bottom up and includes three broad layers:
- Infrastructure. Sitting at the base of the stack, these are the chips and cloud infrastructure that form the foundation of AI enablement. The vast majority of investment to date has been centered here.
- Intelligence. This middle layer encompasses the data and AI models themselves. These are being built now and are increasing in capability.
- Applications. The top layer includes the software services and solutions that leverage the AI intelligence ? creating a new set of AI-enabled applications.
In 2023 and 2024, much of the investment and stock price reaction had been at the bottom layer of the stack. As we progress into year three, year four and year five, we will start seeing opportunities in that intelligence layer and, of course, finally in the application layer, which has not been a beneficiary of this first wave of AI.
What end markets may benefit from the big AI build?
In the consumer market, you could expect to see AI manifesting as “personal assistants” in areas such as web search, social, e-commerce and shopping. From there, AI is likely to become more relevant and engrained in corporations, followed by physical “real world” markets such as cars, airplanes, the military and robots.
Each of these is in very early stages of adoption, but all leverage the same infrastructure that is being heavily invested in right now.
How quickly can AI deliver return on investment?
We know the spending on AI is enormous. In their 2024 earnings reports, the four largest major cloud service providers in the U.S., known as hyperscalers, noted aggregate capex spending intentions of ~$320 billion for 2025 (40% higher than 2024). Some observers have questioned whether that spending will deliver sufficient return on investment. This concern contributed in part to a pullback in AI stocks; however, the debate is more a matter of short-term versus long-term expectations.
Estimates of AI impact may be too optimistic on a two-year horizon, so aligning investment dollars in and profit out in the near term is a mismatch. But the potential benefits and returns that could arise in a 10-year timeframe are likely underestimated.
If hyperscalers fail to invest now, they put themselves at a competitive disadvantage, which would not only affect their future prospects but also their current core businesses, which were constructed in and for a pre-AI era.
What would you say to the AI skeptics?
As an “AI optimist” I encourage equal doses of realism and imagination for the skeptics.
Don’t expect investments in AI to perfectly match return right now. You're not going to get it; it's just not matched. But you also can't assume that the current status quo will be sustained.
Visualizing the vast prospects and potential outcomes that AI can have for businesses, society and productivity requires some leap of faith, some imagination, some creativity of thinking.
Investing in these could potentially offer growth opportunities.
Discuss your investment strategy
If you have questions about investment opportunities or to discuss how your investment strategy is positioned for long-term potential growth, reach out to an Ameriprise financial advisor.