Blackstone's Gray: AI Revolution Drives Investment Boom

In Brief:

Jon Gray warns that artificial intelligence represents "the main thing" driving a new industrial revolution that will fundamentally reshape the global economy, creating massive investment opportunities while threatening to displace entire industries within years. The President and COO of Blackstone, the world's largest alternative asset manager with $1.2 trillion under management, delivered this assessment to investors at the firm's 2025 CIO Symposium. Speaking from Blackstone's 40-year track record of navigating major market shifts, Gray outlined how AI is already displacing young software developers and customer service workers while triggering unprecedented capital expenditure from tech giants. His analysis comes as Blackstone manages investments across a portfolio that provides real-time economic insights, positioning the firm to identify both opportunities and risks ahead of traditional market indicators.

Big Picture Drivers:

• AI Infrastructure Boom: Tech giants are spending $364 billion on AI infrastructure, equivalent to 1% of US GDP

• Power Demand Surge: US electricity demand projected to rise 40% after 25 years of flat growth

• Economic Resilience: Blackstone's portfolio shows 8% revenue growth and rising margins despite global uncertainty

• Rate Environment Shift: Declining inflation and falling interest rates creating favorable investment conditions

Key Themes:

• Technological Disruption: AI is beginning to displace workers in software development and customer service, signaling the start of widespread economic transformation

• Infrastructure Investment: The AI revolution requires massive physical infrastructure investments in data centers, power generation, and electrical grid upgrades

• Market Opportunity: Declining interest rates and improving credit conditions are creating favorable environments for large-scale transactions and exits

• Portfolio Positioning: Blackstone is actively repositioning investments to benefit from AI adoption while avoiding potential disruption risks

Key Insights:

• Employment Impact: Stanford research shows AI is already displacing entry-level software developers aged 22-25 while having no impact on roles like stock clerks and health aides.

• Inflation Reality: Blackstone's rental housing portfolio shows shelter costs at 2%, significantly below the 3.6% reported in official CPI data, suggesting headline inflation is closer to the Fed's 2% target.

• Infrastructure Scale: Four tech companies alone are spending more on AI infrastructure than the combined budgets of NASA, Department of Energy, and Department of State.

• Market Timing: Commercial real estate supply has declined 70% while cost of capital drops, creating optimal entry conditions after three difficult years.

• Global Opportunities: India represents the fastest-growing G10 economy while Japan offers value opportunities through corporate activism and improved capital allocation.

• Risk Assessment: Every new Blackstone investment memo now requires a dedicated paragraph analyzing AI disruption risk in the first two pages.

Memorable Quotes:

• When you have rising sales, rising margins, that is not a formula for a recession" - Jon Gray, explaining why Blackstone's portfolio data suggests economic resilience

• "Over 25 years, power demand in the US was basically flat. Now it's projected to be up 40%" - Jon Gray, highlighting the dramatic shift in electricity needs

• "We have to earn your trust each and every day. We have deliver for you. This is what it's all about" - Jon Gray, on Blackstone's focus on returns

• "This is farm to table" - Jon Gray, describing how private credit connects investors directly to borrowers without intermediary costs

• "The big risk is as this technology takes hold, as we all get more enthusiastic, excesses will build up" - Jon Gray, cautioning about potential AI investment bubbles

The Wrap:

Gray's presentation reveals how Blackstone is positioning for what he calls the most significant technological shift since the internet boom of the 1990s. While acknowledging risks including AI valuation bubbles, excessive government debt, and geopolitical tensions, he argues the productivity gains from AI adoption will drive substantial economic growth. The firm's strategy focuses on "picks and shovels" investments in AI infrastructure while carefully analyzing every portfolio company for disruption risk, demonstrating how sophisticated investors are navigating the early stages of technological transformation.