Vanguard and BlackRock, managing a combined $US36 trillion, have presented contrasting perspectives on how investments in artificial intelligence will influence the market and which companies are poised to gain. Vanguard suggests that the major Silicon Valley firms driving the AI boom risk becoming overextended, potentially leading to disappointing profit trajectories. Vanguard is known for its passive investment strategies and its promotion of investing in weighted indices. The firm is forecasting subdued long-term prospects for US shares, with annualised growth below 5 per cent over the next decade.
Vanguard’s 28-page report cautions that “heady expectations for technology stocks are unlikely to be met,” projecting only 5 per cent annualised returns from US stocks over the next decade. They advise investors to diversify into other equity markets and US value stocks like banks and industrials, which may profit from AI-driven productivity. Vanguard analysts express concern about an “arms-race dynamic” among large tech firms building AI infrastructure, suggesting this could lead to lower returns while smaller competitors benefit.
Conversely, BlackRock, managing $20 trillion, is “pro-risk” and anticipates AI to fuel equity returns this year. The BlackRock Investment Institute expects US equities to outperform, supported by strong corporate earnings driven by AI, Federal Reserve easing, and broad economic optimism. BlackRock anticipates US equities to outperform over the next 12 months. They advise investors to reduce bond holdings due to higher borrowing costs placing upward pressure on interest rates.
While both firms acknowledge AI’s potential to boost productivity and growth, Vanguard forecasts US growth could rise from 2.4 per cent to 3 per cent by 2035 if AI benefits spread widely. However, they warn that stalled AI progress could lead to anaemic growth, reminiscent of the post-2008 financial crisis era. Vanguard anticipates Australian shares to deliver growth of 5.8 per cent per annum over the decade and for bonds to deliver 4.4 per cent.
