Investment leaders from BlackRock and J.P. Morgan are urging investors to distinguish AI stocks driven by momentum from those with durable earnings power.
This distinction is critical as the artificial intelligence trade matures. Investors must determine which companies possess high return-on-capital growth and which are merely riding a wave of market hype to avoid potential losses when momentum shifts.
Helen Jewell, International CIO of Fundamental Equities at BlackRock, and Eloise Goulder, head of the Data Assets and Alpha Group at J.P. Morgan, discussed the strategy in a recent conversation. The two executives focused on the necessity of evaluating AI equities through the lens of fundamental analysis rather than relying on price trends.
Jewell and Goulder highlighted the importance of identifying companies that can translate AI capabilities into sustainable profit. They noted that the sector has shown resilience even in an environment of higher interest rates, suggesting that the underlying value proposition for certain firms remains strong.
As capital shifts toward the AI trade, the impact on other asset classes has become a point of focus. BlackRock recommends a Bitcoin allocation of 1% to 2% [1] for portfolios as the AI trade diverts capital away from the cryptocurrency market.
By prioritizing durable earnings, the executives said investors can better navigate the volatility inherent in emerging technologies. The goal is to find companies where the growth in capital return is supported by actual business results rather than speculative interest.
“Distinguish AI stocks driven by momentum from those with durable earnings power.”
The shift in focus from momentum to fundamentals suggests that the 'easy money' phase of the AI rally may be ending. As institutional investors like BlackRock and J.P. Morgan apply stricter valuation metrics, the market is likely to see a divergence where companies with proven monetization strategies thrive while those relying on hype face significant corrections.
