Momentum vs. fundamentals in the AI trade: Insights from BlackRock
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What does “long‑term” mean for fundamental equity investors?
Hi, and welcome to JP Morgan's Making Sense. I'm Eloise Goulder, and today I'm delighted to be joined by Helen Jewell, International CIO of Fundamental Equities at BlackRock, to discuss the impact of AI on markets. So, Helen, welcome and thanks for being here. Great to be here. Thanks for having me, Eloise. So, your business is in fundamental equities, in bottom up fundamental stock picking, with a long term focus. What does it mean to be long term?
Well, that's a great question. What it really means is focusing on the earnings that a company is able to deliver over the longer term and trying to look through the day-to-day noise that you see in the market. That is actually much more difficult than it might seem because, as investors, you are by your very nature thinking every day about that mark to market. But as long-term investors, you have to focus. Focus on the real things that matter. You have to focus on which of the companies that you are looking at have got a moat around that earnings. You have to look at the key themes that you are seeing, which of course at the moment is the AI space. So whether that's semiconductor companies, tech, hardware, memory names, the key thing that we're trying to do is work out which one of those will really deliver earnings growth over the
Longer term And which of them are getting a real bid, not because the earnings are going to go up, but instead because people are just basically making a short-term bet on the short-term performance.
You mentioned the short-term there, and so many market participants are short-term orientated. So Helen, what are the benefits of being active and long-term in your view?
Well, the key thing is that if you are long term and active, you will see the benefits of compounding coming through. In the first few years of any share price, what you tend to see is that the valuation, the multiple that you pay, actually matters more than the earnings. But there is a lot of research that shows that after those first few years, the earnings matter more than anything. And so that again is what we're focused on. What you're looking for here is a function not just of the earnings growth, but also the return on capital. I know some people don't think this, but not all growth is good growth. If you are a company that is growing, but actually eroding returns at the same time. That is not a good thing from a long term investment perspective.
And that is a challenge, to be honest, Eloise, with the markets at the moment, because the market has been focused on growth rather than focusing on the quality of that growth. And it's so important to understand the benefits of compounding. If a company is growing,
How do earnings growth and return on capital differentiate quality AI stocks from momentum plays?
And returning high returns on that growth, high returns of capital, it can effectively reinvent itself on an ongoing basis. So it's in a really, really strong virtuous cycle. It generates good growth, it reinvests that growth at high returns, and then those high returns generate even more growth going forward. So you're in this perpetual cycle that is really, really beneficial from a long-term investment perspective. It's a little bit like Trigger's Broom in Only Falls on Horses, where effectively he said he only had one broom, but when he was pressed, he actually said, uh, I've only had to change the head five times and the stick ten times. In his mind, it was the same broom, but actually what he'd been able to do is reinvent the broom a million times.
I love that analogy. We've never heard that before. And indeed, this idea that if you're throwing off significant growth and significant returns on your capital base, then indeed you can reinvest that and you can reinvent yourself and you can pivot the business to wherever the future opportunities lie. So coming back to AI, we've obviously seen a phenomenal run in AI-related segments, most notably, as you just said, across memory names, across semiconductors. And across AI infrastructure this year. These sectors are high growth in terms of revenue growth and earnings growth, driven by the scale of AI Capex.
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Chapters
8 chapters
1
What does “long‑term” mean for fundamental equity investors?
0:04–2:45
2
How do earnings growth and return on capital differentiate quality AI stocks from momentum plays?
2:45–5:35
3
Why is the market’s focus on short‑term momentum a risk for AI investors?
5:35–8:23
4
Which AI‑related segments (semis, memory, software) are delivering durable earnings versus hype?
8:23–11:11
5
What data points reveal bottlenecks and commoditisation in the AI supply chain?
11:11–14:19
6
How are retail, ETF, options and quant investors reshaping AI market dynamics?
14:19–17:00
7
What valuation framework combines earnings growth, cash‑flow and return‑on‑capital for AI firms?
17:00–19:36
8
How do regional differences (Asia vs. Europe) affect AI investment approaches?
19:36–21:21
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