BlackRock: China's AI gains are stock-specific, not a regional opportunity

BlackRock Investment Institute released a measured take on the artificial intelligence investment landscape this week, and it amounts to a clear message: don't bet on China as a region, but don't ignore it entirely either. The firm's analysts see the real winners of the AI race clustering in the United States, with only a handful of Chinese companies worth owning. It's a nuanced position that cuts against the grain of recent market enthusiasm in Asia.

The numbers tell part of the story. China's ChiNext index—the mainland's tech-heavy exchange—has surged more than 20 percent so far this year, outpacing the Nasdaq Composite's roughly 12 percent gain. Yet the broader picture is messier. The MSCI China index, which captures the country's largest publicly traded companies, has fallen more than 10 percent, while major U.S. benchmarks have climbed by the same margin. The divergence matters because it reveals something BlackRock's analysts think investors should understand: not all Chinese stocks are created equal in the AI era.

China does possess real advantages in the global AI supply chain. The country leads in manufacturing and battery production—inputs that will matter enormously as the technology scales. Beijing has also rolled out policies designed to nurture domestic AI development, a response to American restrictions on advanced semiconductors and a push to embed the technology across its economy. But advantages in the supply chain don't automatically translate into stock gains. "Cheap, open-source AI could drive adoption, but that doesn't necessarily translate into AI-provider profitability," BlackRock's report noted. The firm sees a gap between technological progress and financial returns, and that gap is where many investors are likely to stumble.

The investment institute's preference is for what it calls "physical AI"—technology integrated directly into hardware like robots and manufacturing equipment. These plays offer a clearer path to revenue and profit than software alone. Beyond that, BlackRock is bullish on infrastructure investments across multiple regions, from China to Latin America, as the world builds out the computational backbone AI requires. But when it comes to the core question of who wins the AI race, the firm's answer is unambiguous: the United States, primarily because of its dominance in chip design, its leadership in frontier AI models, and the depth of its capital markets.

This stance contrasts with some other voices in the investment world. Last month, David Chao, Invesco's global market strategist for Asia Pacific, suggested that foreign investors would increasingly notice earnings growth and export strength in Chinese tech companies over the coming years. He pointed to Latin American pension funds already raising their exposure to China's tech sector. Yet BlackRock's view is more skeptical about broad regional plays. The firm maintains a neutral stance on Chinese stocks overall while staying overweight on the U.S., a positioning that reflects confidence in American technology leadership but also wariness about China's ability to convert policy support and manufacturing prowess into shareholder returns amid slower economic growth and intense competition.

The debate over whether AI itself has become a speculative bubble hangs over all of this. BlackRock's answer is pragmatic: rather than trying to pick the ultimate winners—a notoriously difficult task—focus on companies with access to scarce inputs. That could mean semiconductor manufacturers, data center operators, or the infrastructure providers that will power the next generation of AI systems. It's a framework that acknowledges both the genuine opportunity in artificial intelligence and the real risk that many investors will chase the wrong stocks. For those considering Chinese exposure, BlackRock's message is clear: be selective, be skeptical of regional narratives, and remember that manufacturing strength alone doesn't guarantee a good investment.