The artificial intelligence (AI) revolution has been a significant driver of the S&P 500’s rally this year, and according to BlackRock analysts, this trend is expected to continue over the next six to 12 months.

Companies’ massive capital expenditures on AI and the increasing demand for low-carbon energy are among the reasons for this bullish outlook. Investments in AI data centers are projected to rise by 60%-100% annually in the coming years. This level of capital expenditure is rarely seen in history and is comparable to the Industrial Revolution.

As of early July, a record $6.15 trillion was sitting in money market funds as the S&P 500 notched 36 record highs this year. In the first half of 2024, the S&P 500 gained 14.5%, with AI heavyweight Nvidia accounting for roughly one-third of the S&P 500’s gains during the first six months of the year.

BlackRock strategists believe that the concentration of equity performance in mega-cap companies is not a problem as these companies have delivered on earnings. They expect large technology companies to invest heavily in AI and chip producers and firms supplying energy and utilities to continue to outperform.

However, potential challenges from policy and regulations, rules on the use of AI, and supply bottlenecks amid growing demand for metals and minerals like copper, aluminum, and lithium could slow down or interrupt AI’s build-out and adoption.

Investors are advised to consider “leaning into risk, stepping away from cash, and really thinking of pockets where there are opportunities,” such as Energy, Health Care, and Utilities — sectors that are set to benefit from the AI boom.