Blackstone is winning in the AI space

Five weeks ago, Wide Moat Research analyst Nick Ward wrote about Nvidia (NVDA) not necessarily being everyone’s “speed.”

While he himself is a big fan of the company, he recognizes its volatility issues. “Not every investor can or should commit to those kinds of swings,” he said. However:

Today, I have another investment opportunity that’s doing very well off of artificial intelligence. It’s not as safe as utilities, mind you. But I think the added risk of investing in Blackstone (BX), the world’s largest private equity and alternative asset manager, will be well worth the rewards.

While Wall Street continues debating over which matters more, chips or software, Blackstone is assembling an enormous AI infrastructure portfolio. Data centers and other digital real estate, electric transmission assets, fiber networks, logistics facilities: These mission-critical assets are helping to drive significant earnings growth.

That’s what we just learned from its recently released second-quarter results, where:

And much of that value creation came from AI. In fact, nine of its 10 largest investment markups were from such investments.

So if you want a worthwhile AI trade outside of Big Tech, Blackstone is an intriguing place to look.

I know I keep writing about data centers – including on Monday, when I mentioned Digital Realty (DLR), and last week’s piece on Iron Mountain (IRM). But I hope you’re not getting sick of it.

Because I don’t think I can stop. Not when the investment case is so compelling. Blackstone’s expanding digital infrastructure domain is just one further indication of that.

For starters, the firm's data center platform now has an enterprise value of around $185 billion. That’s up from roughly $130 billion six months ago.

Moreover, Blackstone is on track to lease more than three times as much data center capacity in 2026 as in any other year. Even more impressive, management believes it can double the platform again in the foreseeable future.

To me, that’s just one more indication we're in the early innings of AI infrastructure spending. There’s still plenty more to come.

Blackstone certainly seems to think so considering how it recently launched Blackstone Digital Infrastructure Trust (BXDC). This new data center real estate investment trust (REIT) raised approximately $1.75 billion at its IPO, with proceeds potentially reaching $2 billion.

Now, admittedly, as I wrote on May 23, this is a “blind pool” operation that “hasn’t acquired any assets yet.” So we’re not investing in it until it’s working with something substantial.

But Blackstone itself? That’s a different story altogether considering how data centers are only part of its big tech strategy.

It knows that every AI model also depends on:

And so it’s built meaningful exposure across nearly every one of those physical infrastructure categories so far.

For instance, it’s partnered with companies like Broadcom (AVGO) on AI initiatives and engaged with Williams Companies (WMB) as well. That latter entity’s natural gas pipeline network helps fuel the enormous electricity demand required by hyperscale data centers.

I've often described AI as an infrastructure investment story just as much as a technology story. And Blackstone is making sure to be on as many of those pages as reasonably possible.

None of this is to say the firm is obsessed with AI, however. Blackstone still understands the value of infrastructure for infrastructure’s sake, not to mention diversification.

One such example is how it recently joined KKR (KKR) and Brookfield Corp. (BN) to invest $16 billion into Kuwait's national oil pipeline network. That’s the largest foreign investment in the country’s history.

Together, the trio will acquire a 49% interest in a joint venture to own Kuwait's 320-kilometer pipeline system, then lease it back to Kuwait Petroleum. This will generate nearly $8 billion upfront for the country and help it increase crude oil production capacity to 4 million barrels per day by 2035.

Blackstone will also open a new office there, with additional locations across the Gulf Cooperation Council region to follow.

As President and Chief Operating Officer (COO) Jon Gray explained, Kuwait has the "resources, vision, and leadership" to become a major commercial and financial hub. And private capital can play an important role in supporting the country's long-term diversification.”

In all of these investments, AI or otherwise, Blackstone seeks out assets with:

That's why I’m so intrigued with its business and how much it can grow from here. There’s very little not to like.

Note how I didn’t say there was nothing not to like. Despite my sincere admiration for Blackstone, I remain a realist.

No company is without its challenges, and this business is no exception. The primary headwind to know about here is its private credit arm.

Its Blackstone Private Credit Fund, or BCRED, continues to face public fear, with retail investors requesting withdrawals at elevated rates. Second-quarter redemption requests exceeded BCRED’s 5% quarterly repurchase cap – once again – to the point where the fund could only satisfy about half of those requests.

But two things about that:

Besides, Blackstone's valuation remains attractive – and that’s despite its current market upswing. Shares are still trading at approximately 22.5x forward earnings, which is well below their historical average of 28.1x.

Plus, investors who get in now get a roughly 3.6% dividend yield. And Wall Street estimates call for approximately 25% earnings per share (EPS) growth next year.

As such, I believe Blackstone could provide total returns of 20% over the next 12 months… perhaps even as much as 30%.

Personally, I’m expecting 25% after considering the bigger picture. Blackstone is no longer “merely” the world’s largest private equity firm. It’s also becoming one of the largest infrastructure owners through its AI plays and beyond.

Regardless of whether you choose to buy it or not, make no mistake that Blackstone has built quite the wide moat in this regard. And that wide moat will probably only grow from here.

Happy SWAN investing!

Brad Thomas
Editor, The Wide Moat Daily

The Wide Moat Show’s July 16th episode focused on “7 strong buys” – complete with two stocks trading at especially attractive price points. And we were pretty pleased with those finds.

If you were too, you’re going to love the “7 more bargain stocks” we reveal in this latest video. We’re talking about massive discounts!

Click here to watch Nick Ward and me discuss what these companies are… why they’re trading so cheaply…

And what kind of returns we think they can make for intrepid investors in the months ahead.