BlackRock Warns of Volatile Ride Ahead as AI Boom Drives Market Risks
BlackRock, the world’s largest asset manager, expects artificial intelligence to remain a dominant market theme through 2026 but has cautioned investors to brace for turbulence amid rising speculative activity and leverage in global markets.
AI to Keep Powering Markets Despite Volatility
Helen Jewell, Chief Investment Officer for Fundamental Equities in EMEA at BlackRock, said returns from AI-linked investments would likely continue to rise, though short-term swings were inevitable as investors reassess valuations and growth prospects.
“Do I expect an upward trend of AI growth returns? Yes,” Jewell told Reuters on Thursday at a conference in London. “These are incredible capital spends being driven by companies with incredible amounts of cash.”
However, she added that market dynamics would remain choppy. “Do I think that there is likely to be a rocky ride as we go there? Also yes,” Jewell said, identifying crowding in AI-related trades and high leverage levels as catalysts for volatility.
Leverage and Crowded Trades Raise Market Risk
Concerns about overinvestment in AI infrastructure—particularly in data centre construction—triggered a sharp correction in U.S. equities in November, the biggest in several months. The pullback underscored how dependent markets have become on sentiment around the AI sector.
Hedge funds have also been trading with near-record leverage, heightening the risk of rapid market reversals. Analysts warn that any significant decline in asset prices could force funds to liquidate holdings quickly to meet margin calls, amplifying selloffs.
Jewell said the AI boom was creating new opportunities beyond the technology sector, particularly in Europe’s energy and infrastructure industries. She highlighted companies such as Siemens Energy as potential beneficiaries, given their role in supplying turbines, power grids and clean energy systems to meet the surging electricity demand from data centres.
Broader Market Outlook: Energy and Defence in Focus
Speaking separately on a panel, Jewell added that BlackRock remained positive on defence stocks, though less so than at the start of the year. European aerospace and defence shares dropped about 8% in November—their steepest monthly decline since mid-2024—amid renewed speculation about a potential peace deal between Ukraine and Russia.
While AI continues to attract massive capital inflows, BlackRock’s outlook suggests investors should expect both opportunity and instability in the years ahead, as enthusiasm collides with the realities of leverage and market concentration.
with inputs from Reuters