00:00 Speaker a
I would like to bring in Jay Jacobs from BlackRock US Equity ETFS for this week's ETF report, raised by Invesco QQQ.
00:14 Speaker a
So, Jay, I know you guys are focusing on a kind of big, long-term theme and ai falls straight into that bucket. Nevertheless, if investors are investing in this subject, and from what they have seen in the past, what does cadence look like? In other words, when certain technologies are being adopted, we have obviously crashed in the past. What do you think the rhythm of this looks like?
00:53 Jay Jacobs
Well, this is a very long-term theme. In the short term, the market is constantly trying to price what the value of artificial intelligence is. Single digit trillions of dollars? Is it a few digit dollars? It has not been seen yet, but in reality, we consider this to have a huge economic impact, just like what we saw with the rise of the Internet. And we are in the early stages of this build phase, which is found in a large number of cups to build a data center, and we build the model before building the model before promoting adoption of this space.
01:37 Speaker a
And Jay, another interesting aspect of this is what we've seen. You know, we're continuing to talk about spreading, spreading, spreading. Even within AI trades there is a spread. We spoke with Scott Chronick from City yesterday and he pointed out that we've seen things like industrial stocks really tied to AI, as we've seen things like industrial stocks really tied to AI, for example. So how do investors think about where to go?
02:25 Jay Jacobs
I think that's exactly right. In other words, we've seen a gathering of real estate stocks that are building data centers. There is so much power demand for artificial intelligence that there is a lot of enthusiasm among investors regarding the utilities that create power. That's why we have a very broad ecosystem. You can see it from a type of technology lens, but you can really see it from the entire economy lens. One area not rated as using AI is healthcare. Can you reduce costs and speed up drug development using artificial intelligence? Can artificial intelligence be used to build more data from doctors, focusing on patients? Therefore, using this as a tool to make the industry more efficient is extremely beneficial for some of these stocks.
03:27 Speaker a
Do you think it's too early to get into that subject? As you know, it's better to look at some of the other sectors. As you know, healthcare was a fairly low-performing sector.
03:45 Jay Jacobs
I don't think it's too early. Investors should expect this to be a long-term play. I wouldn't want people to think of this as something like a weekly or monthly transaction. If you are buying an AI theme for the possibility of confusion, this is a decade of play. You can go in today, but you need to look at the volatility, just sit down and look at the long term for this.
04:17 Speaker a
And when it comes to the long term, we have a fit and a start, right? You are pulling back something like a core weave today. Well, you have a chatgpt5 release. So, you're looking at those daily headlines, so how should it affect their thinking? So, I understand that I keep it for the long term, but shouldn't we incorporate what is going on and what the latest news flow is?
05:04 Jay Jacobs
Well, one of the changes we want to see is when this infrastructure will focus on more enterprise adoption phase, with a very focus on capital expenditures? And it will come from a new, large language model that is stronger than ever. Perhaps it will come from new contracts with governments and large companies employing AI. But that's what we want to see. This advancement comes from the construction of business and government recruitment. So, looking at some of the aggressive strategies like BII, it is actively managing exposure to AI stocks, but what we expect is part of the migration from CAPEX and others to large language models and application users, as we can see that adoption is happening.
06:03 Speaker a
Have you ever seen a slow inflow into any of these products, or is it like the top and bottom?
06:12 Jay Jacobs
It will accelerate. Well, what we saw is that billions of dollars have come to AI suites over the last few months and are regularly seeing a huge influx. It's happening both on the active side using BII and across the value chain using RDI. This is an index-based AI ETF. Well, investors realize that this is not only a hot topic, but it's not getting a good exposure to it through the S&P 500 or Tech Sector ETF. They really need a dedicated allocation to capture the AI value chain.
06:51 Speaker a
I'm glad you've raised that point. Because you've been talking about the focus of the S&P 500 all year round, not just this year, but for several years. So why don't people buy S&P and forget? And why do they want to concentrate more?
07:21 Jay Jacobs
Now, the Mag 7 is a narrow sliver in the AI value chain. As you know, most of these companies are in the space of large language models, perhaps one or two in the hardware semiconductor space. Well, looking beyond that, when we talked about data centers, we talked about power. Companies using AI to build new products and applications. So, if you really think about this Tech Stack as a whole, this isn't about the seven companies. This is like 30, and perhaps even up to 50 companies. As a result, AI as a whole can be much more diverse. At the same time, you can really focus on this subject by selling the high-tech sector and purchasing AI ETFs.
08:24 Speaker a
At the same time, the meaning is that if this continues, it will also serve the broader market. So, as long as this AI trade is working, will you see a slowdown to record this push?
08:45 Jay Jacobs
AI can be a major tailwind for the economy as a whole, and there are several reasons for this. For one, obviously, the US was an incredible innovator. Tech is a big part of the S&P 500. So, generally speaking, the rising tide can lift most ships. The reason I say most ships is that this is not just a direction. Some companies have a major impact on artificial intelligence. Their business model could be reversed by AI. So
09:21 Speaker a
Do you know what they are yet?
09:26 Jay Jacobs
Well, how much we do. So I think one area that could fall on either side of this coin is software companies. Some software companies are able to develop software more quickly with artificial intelligence. Other software companies have been licensed software from someone for a while and can build that software very quickly using their own big language models, which can actually be hampered by AI. So there are certain industries that wonder a little more in the air how it unfolds. Some industries are very isolated from artificial intelligence. These are some of the industries I really liked with some of the theme rotation ETFs like throw. Think about infrastructure names, construction names, and some real estate names. For example, it is difficult to see how AI will change these business models, much more often than much in the world of services.
10:35 Speaker a
It's an IRL that cannot be used by AI. Machines are Earth's mobile devices.
10:49 Jay Jacobs
Well, that's a bit ironic. Because if we were back ten years ago, it was that robotics was actually the edge of artificial intelligence bleeding and could automate skilled physical work. In reality, it is the work of services that has been much expanded by artificial intelligence.
11:16 Speaker a
Jay, I'm happy to meet you. Thank you for coming in. appreciate.
