The AI boom may mark the beginning of a new era that has the potential to be more transformative than the industrial revolution and the advent of the internet. This assertion comes from the world’s largest asset management firm, Blackrock, in a recently released report.
In the report, Blackrock emphasizes that AI has captured the attention of investors and is not simply a passing trend. They believe that AI has the power to fundamentally change economies and markets. This sentiment was echoed at a recent dinner hosted by Morgan Stanley, where discussions revolved around how to capitalize on the future developments in AI. The event was attended by financial elite from Wall Street, including major players like Apollo Global, KKR, Oaktree Capital, and Blackstone.
The AI boom has been likened to the gold rush of the 1800s, with Nvidia’s chips being compared to the pickaxes and shovels of that era. At the dinner hosted by Morgan Stanley, there was a consensus that the next significant investment opportunity lies in the expansion of data centers and the energy capacity required to power them.
Blackrock’s report highlights that the initial phase of this technological shift will be characterized by a race to build the necessary infrastructure. The firm estimates that investments in data centers and AI chips could reach $700 billion annually by the end of the decade. This presents significant opportunities for cloud and chip companies, as well as firms in sectors such as energy, industry, materials, and real estate that provide essential resources for this expansion.
Furthermore, Blackrock identifies Wall Street tech giants as winners in this expansion phase, which is expected to last at least another five years. These companies possess unparalleled resources in terms of data, talent, computing power, and financial strength, enabling them to innovate rapidly and maintain a competitive edge.
While Blackrock does not name specific companies, tech giants like Amazon, Microsoft, Google, Meta, and Nvidia are currently leading the investment charge in AI. Critics have raised concerns about potential overinvestment by these companies and uncertainties regarding the timeline for revenue generation.
Blackrock acknowledges these concerns but emphasizes that the scale of investments should be viewed in relation to the immense potential of AI. They believe that returns are likely to materialize over the next decade, rather than within a year or two. While some companies may overinvest in a “winner takes all” race, a broad exposure to the sector would still capture the ultimate winners.
Looking ahead to the second phase of the AI boom, Blackrock anticipates a surge in the adoption of the technology, leading to the emergence of new winners beyond the tech sector. Industries such as healthcare, finance, and communication services could see new leaders emerging. In the third phase, entirely new business models and industries could be born, with potential winners that may not even exist today or may arise in unexpected areas.
Blackrock advises investors to adopt an active investment strategy to navigate this complex landscape, as those with deep technical expertise are likely better equipped to identify winners across different time horizons. By keeping an eye out for companies that could generate entirely new revenue streams, investors can position themselves strategically in the evolving AI ecosystem.