BlackRock (NYSE:BLK) analysts said in a note to clients Monday that they remain bullish on technology stocks as a driver of market returns despite recent volatility.
The investment firm's focus lies on long-term structural shifts like Artificial Intelligence (AI), rather than short-term economic data like the Consumer Price Index (CPI).
"We're eyeing how a surprisingly soft U.S. CPI report translates into PCE data," notes BlackRock. "We think cooling inflation means the Fed can start cutting rates in coming months."
However, they downplay the significance of this data for tech stocks, emphasizing, "Looking through this near-term noise, we think tech will drive returns as consensus expects big tech companies to carry positive earnings results for the market," says the firm, adding that they "see pullbacks as an opportunity to lean into stocks."
BlackRock highlights the resilience of the tech sector: "Consensus forecasts for tech earnings have risen well above those for the rest of the S&P 500. Analysts see tech earnings growing 18% year over year in Q2 versus 2% for the rest of the index."
They acknowledge potential volatility, particularly surrounding chipmaker earnings reports in late August, but view pullbacks as buying opportunities.
While BlackRock expects tech to maintain its earnings lead for now, they see it narrowing as AI adoption accelerates growth in other sectors, highlighting "the buildout of AI boosting sectors such as industrials, materials, energy and healthcare."
This transformation, they believe, outweighs the recent rally in small-cap stocks, which BlackRock views as "more sensitive to higher interest rates and not exposed to the drivers of the transformation we expect."
Overall, BlackRock advises against overreacting to economic data like the CPI. They remain confident in big tech's ability to deliver strong earnings and recommend staying invested in the technology sector and the broader U.S. market for long-term gains.