The artificial intelligence trade has powered markets to record highs this year, but not every AI stock will come out on top, cautions one of BlackRock’s (BLK) top strategists.
Gargi Pal Chaudhuri, chief investment and portfolio strategist for the Americas at BlackRock, says investors need to start getting more selective within the AI space as tariff risks rise and earnings season kicks off.
“We’re thinking about investing actively, even within the AI theme,” Chaudhuri said in an interview on Yahoo Finance’s Open Bid. “Given these tariffs headlines that are going to continue to play out over the next few months, we think there are going to be winners and losers within the space.”
After a first half filled with surprises, from a deepening global rate divergence to a broadening of the Magnificent Seven rally, investors can’t assume the same playbook will work in the second half of 2025.
One under-the-radar hedge, she says, is in bonds, particularly inflation-linked securities like TIPS and STIP, which can help shield portfolios if sticky inflation reemerges or new tariffs begin to bite. Chaudhuri suggests the need for a better toolkit to handle the downsides of tariffs and rate swings, especially since they hit different areas and industries.
“Allocating to the inflation-linked space, especially at the very long end of the curve, can be a really good addition to a portfolio right now,” Chaudhuri said.
The comments come as Wall Street is recalibrating its expectations for rate cuts. After pricing in just one or no cuts earlier this year, some investors now expect two by year-end, thanks to softer inflation data and a cooling labor market. Chaudhuri said rate cut hopes, combined with low expectations for the upcoming earnings season, have helped steady market sentiment even as risks mount.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
“After the incredible Q1 earnings season, expectations are low,” she said. “Many are expecting certain areas, such as tech and software, particularly AI names, to beat.”
Chaudhuri added that while many equity markets could broadly go higher in the second half, the path won’t be smooth. On Monday, Trump posted letters impacting 14 countries on tariffs, with rates ranging from 25% to 40%. The president warned that there will be no extension to the tariff negotiation deadline of Aug. 1.
The call for more active positioning is echoed in BlackRock’s broader midyear strategy. The firm’s analysts argue that market outcomes are increasingly being shaped by policy decisions, from rate policy to fiscal spending, rather than just corporate fundamentals.
For now, the mood heading into the second half is about thoughtfulness. “Sure, maybe equity markets can go higher. But you really have to pick your spots,” Chaudhuri said.
Francisco Velasquez is a reporter for Yahoo Finance. He can be reached on LinkedIn and X.
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