BlackRock's 2025 Outlook on AI and U.S. Stocks

By Davide Barbuscia

NEW YORK (Reuters) – BlackRock (NYSE:BLK) anticipates that the artificial intelligence boom will continue to uplift U.S. stocks in 2025 and support broader economic growth, though increasing U.S. government debt levels may pose a risk to these optimistic predictions.

Innovations in AI technology are expected to favor U.S. stocks over European ones, and private markets will play a pivotal role in financing AI-related infrastructure. This is outlined in a report from the BlackRock Investment Institute, associated with the world's largest asset manager, which oversees $11.5 trillion in assets.

"We stay risk-on… and go further overweight U.S. stocks as the AI theme broadens out," the report stated.

While U.S. economic growth may temper slightly in the coming year, the Federal Reserve is unlikely to reduce interest rates meaningfully due to persistent inflation above its target. The institution predicts interest rates will remain above 4%, currently in the 4.5%-4.75% range.

Ongoing price pressures from geopolitical fragmentation and infrastructure investments could impact the bond market, with investors expected to seek higher returns on long-duration government debt to offset inflation and substantial U.S. deficits. This could result in rising long-term Treasury yields, which are inversely related to price movements.

BlackRock noted, "We are underweight long-term U.S. Treasuries on both a tactical and strategic horizon – and see risks to our optimistic outlook from any surge in long-term bond yields."

The firm favors U.S. corporate debt over Treasuries and supports government bonds from other developed markets, such as the United Kingdom, where interest rate cuts might be more aggressive than current market expectations.

In terms of stocks, BlackRock looks to sectors like technology and healthcare, while viewing assets like gold and bitcoin as alternatives to government bonds amid stock market declines.

Recently, BlackRock announced plans to acquire credit investment manager HPS Investment Partners for approximately $12 billion, expanding its presence in the private credit sector, a vital growth area for the organization.

The BlackRock Investment Institute highlighted, "Private markets can offer exposure to early-stage growth companies driving AI adoption and crucial infrastructure projects."

Regarding private markets, BlackRock continues to prefer infrastructure equity due to its attractive valuations and significant trends, while favoring direct lending for income due to more favorable yields in private credit.