The Golden Age of AI is Still in its Early Stages
Although the recent heat in the artificial intelligence (AI) market has cooled, with some investors being cautious about whether the massive investments by large tech companies in AI infrastructure will pay off, Tony Kim, head of BlackRock's Global Technology team's fundamental equity, believes that the "Golden Age of AI" has actually just begun.
Kim points out that AI has not yet fully penetrated society, and there is still a long way to go before AI is fully embraced in personal lives and business operations. For example, the use of AI assistants in everyday life, full integration of AI agents in work processes, and the widespread use of physical AI like autonomous vehicles and robots have not yet been realized.
Software Companies to be the Greatest Beneficiaries of AI Boom
Tony Kim says the next phase of AI development will be driven by software companies that are building bridges between AI and enterprises and consumers. As more companies integrate AI into their products and services, software firms will rapidly rise in the AI boom, becoming the new engine of technical expansion.
Kim believes that while NVIDIA plays a central role in the global supply of AI chips, as AI is more widely applied across industries, the long-term growth potential inherent in software companies is more worth noting.
Software Companies Have Unique Competitive Advantages
BlackRock points out several advantages that software companies have amid the AI boom:
First, software companies can leverage their accumulated data sets to build proprietary AI systems either through acquisitions or in-house development, creating differentiated competitive advantages. For instance, companies can use their unique data to train AI models, providing clients with unique solutions and enhancing market barriers.
Secondly, software companies can apply AI across various industries to assist businesses in decision-making and actions through intelligent tools, including inventory management, coding, healthcare, and architectural design.
Software Industry Has Strong Capacity to Adapt to AI Boom
Unlike the chip industry, which requires significant hardware investment and capital expenditure, software companies can rapidly scale to meet the growing demand for AI. Most software companies rely on centralized cloud storage and distribution systems, allowing them to expand customer scale without significantly increasing operational costs, maintaining high-profit margins.
Furthermore, software companies predominantly operate on monthly or annual subscription models that offer stable recurring revenues, making them more predictable in future cash flow forecasting and reducing investment risk.
Promising Software Opportunities in Two Major Areas
Tony Kim suggests investors focus on two major software areas: consumer-focused software and enterprise-focused software.
In the consumer sector, tax software provider Intuit Inc. and language learning platform Duolingo Inc. are typical representatives; in the enterprise sector, customer relationship management software Salesforce and design software giant Autodesk are worth noting.
BlackRock believes that as the application of AI continues to proliferate, software companies will seize long-term growth opportunities in the AI golden age, attracting more capital inflows, and driving the entire software sector to strengthen continuously.
Deep Integration of AI and Software Industry
Despite certain challenges posed by global economic uncertainties and geopolitical situations, BlackRock believes that AI is accelerating in pace and rapidly advancing in capabilities, destined to penetrate all facets of society. As AI development and operation costs gradually decrease, software companies will become key forces in promoting the global proliferation and commercialization of AI, paving the way for expansive long-term growth.
