Artificial intelligence usage has taken the world and markets by storm, but what are the mega force trends driving innovation? Gargi Chaudhuri, BlackRock Head of iShares Investment Strategy, breaks down the components behind AI's boom, including semiconductor chip stocks, and looks ahead to other forms of innovation.
Video Transcript
BRAD SMITH: Our next guest says trends such as demographics and artificial intelligence are impacting present day returns not just in the future. So how do you play it? And we're talking about some mega forces now. Joining us now we've got Gargi Chaudhuri who is the BlackRock head of iShares investment strategy. Gargi, great to have you here in studio with us today.
GARGI CHAUDHURI: Wonderful to be here. Thank you.
JULIE HYMAN: Don't you feel like when you say mega force you should-- it should like echo mega force, force, force, force, force.
BRAD SMITH: It should be rattling off of the walls in the studio.
JULIE HYMAN: Exactly.
GARGI CHAUDHURI: Next time we'll make sure we do that.
BRAD SMITH: Help us define mega force, perhaps, just to set the conversation.
GARGI CHAUDHURI: Yeah, absolutely. So think about large themes-- thematics that are with us today that s going to stay with us for the medium to long term that will define our investment landscape through every part of the market. So it's not just an equity market story. It can be a part of your equity market allocations, your fixed income market allocations, or your private market allocations. And it is going to be pervasive across different sectors, different industries and, as I said, different asset classes.
So we're-- at BlackRock, we are focused on two specific mega forces right now, which, as you pointed out, was AI and demographics and the changing demographics. But there are other ones, you know, if you think about the geopolitical fragmentation that's taking place, if you think about the transition in climate that's taking place. So there are all these broad mega forces that we think are going to impact investors today. They're coming mega soon as we say in our report. But they'll also be with us for a really long period of time and change the investment landscape.
JULIE HYMAN: And we're still trying to get our arms around the AI mega force because while AI, of course, is not new--
GARGI CHAUDHURI: It is not.
JULIE HYMAN: --large language models being used in an effective way are new. And I've really been struck as we've just started to learn about it about how many different industries are trying to deploy this. So then how do you think about it from an investment perspective? I mean, if everybody is doing AI, just buy everybody.
GARGI CHAUDHURI: Right. So, you know, when we look at how investors have been implementing AI in their portfolios-- and by the way, to your point, this has been around for a long time, but we did have that transformer technology that is about a few years old that allowed for us to have this generative AI, which is obviously a lot smarter and it's continuing-- it's going to continue to get smarter and enable us to have more human-like, smart behavior, if you will.
And investors have been navigating that so far in the large cap tech space, right? That makes sense. We've seen the performance, and that's how it's made itself a part of investor portfolios. As we think about it-- this is why it's a mega force. As we think about where AI can go over the next five months but really five, 10 years, I don't think this is just a story of semiconductor chips.
This is a story of how this can impact health care, how this can impact financial services, how this can impact art world. So you know, just a quick example, and I'm sure we've all used ChatGPT, so that's, you know, very normal to think about and it's such a hype right now.
But I just went for my annual physical and I was doing a mammogram, and there was basically an option where you could have a breast cancer risk for women determined by AI. And that was in a hospital in New York City. And I obviously said yes, and it gives you a percentage chance of breast cancer. And it's read by AI. So they take your data and they compare it to 10,000 different people that have similar features as mine and they look at my ultrasound and they compared it to others. I thought that was really cool.
JULIE HYMAN: And that's the first time that was ever offered, presumably, to you.
GARGI CHAUDHURI: For me, yeah. I mean, I hadn't been-- I guess this was the first time I went this year. It wasn't available last year to me, not by AI. So I just-- and this is just one small thing that happened to me two days ago, which is why I'm talking about it. But I think the implications are at its nascent stage. So I think this has been huge in-- you know, when we talk about semiconductor chips.
But I think when we think about the implications on the broad market, just think back to internet in the 1990s, 2000s. It didn't just impact the tech industry, it impacted every industry. It impacts how we work today. So I think that is why it's a mega force. And currently we're telling investors to look at iShares ETF tickers like IRBO, which is allocating to the AI developers and the AI enablers.
And that is one way to get access to the entire value chain as opposed to a specific large cap tech company, which, by the way, obviously has had an immense run and, to Angelo's point earlier, is a great way to have access to quality, cash flowing, profitable companies.
BRAD SMITH: And so for as much focus as there's been around the chips--
GARGI CHAUDHURI: Uh-huh, yeah.
BRAD SMITH: --as part of the broader AI or generative AI kind of totem pole or pillars, if you will--
GARGI CHAUDHURI: Yeah.
BRAD SMITH: --there's-- it sounds like also kind of that next wave of focus that's really going to be centered around the companies that have the most data.
GARGI CHAUDHURI: Right.
BRAD SMITH: As well as index within their own AI products.
GARGI CHAUDHURI: And the data processing ability.
BRAD SMITH: Sure.
GARGI CHAUDHURI: So when you-- when the data-- so that the enablers of AI. So yes, the companies that have the most data and the ability to process that data, all of the cloud companies, if you will. And then you're-- the next version of this or when I hopefully come back to the show in a few years or next year we'll be talking--
BRAD SMITH: Let's not wait that long, yeah.
GARGI CHAUDHURI: We'll talk about all the different sectors. And-- and sometimes, again, this might have to be something that we think about in an active form. All the different sectors that are beneficiaries and that are not beneficiaries, we have to talk about that too. So what areas of the market are not able to embrace AI? Who's coming to it kicking and screaming, and what companies have had the ability to embrace AI and actually the talent that can deploy AI effectively?
So I think it's nascent, again. And we talked about this earlier-- are we going to have the same run up that we've seen since Nvidia reported earnings in May? I mean, I don't know if it's going to have this kind of shot. It might not look like that. But is this something that we're going to talk about for the next five years? I think it's going to be very pervasive in our lives.
JULIE HYMAN: And it's a good reminder, too, when you talk about that anecdote, like if you're an investor and you're interested in this, you're at the hospital and you get that report, OK, you find out who crunched the data. Who's behind it, right, and get the names of these companies and try to figure out what they're doing. Interesting.
GARGI CHAUDHURI: Exactly. And then doing so not with one company but looking at the theme behind it. And you know, I always tell my friends this-- if you like a particular idea in the market, like electric vehicles, instead of buying one stock, buy that thematic. Buy the thematic. So in this case, the AI enablers and developers as a thematic, so going up and down the value chain of all the different types of companies that currently, we think, are in the space that can benefit the most as opposed to playing it in a very narrow way, which, by the way, has worked brilliantly, but I think there's more scope.
