BlackRock is steering AI investment away from crowded chip stocks toward physical AI — robotics, sensors, batteries and rare earths — as the infrastructure buildout creates scarcity-driven opportunities.
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BlackRock shifts AI focus to physical AI as scarcity drives $360B buildout
BlackRock Global Chief Investment Strategist Li Wei said the firm remains "adamantly confident" in AI but expects investment focus to shift toward physical AI, including robotics, sensors, batteries and rare earths, as data center and energy constraints reshape the opportunity set.
"Investing in AI is not about guessing which company will become the ultimate winner, but rather focusing on the scarcity opportunities created by AI," Li Wei, Global Chief Investment Strategist at BlackRock, said. "Regardless of which AI model prevails, AI development will inevitably require substantial data centers, energy, electricity and chips."
The shift comes as AI-related capital expenditures across major hyperscalers exceeded $360 billion in 2025, reflecting multiyear commitments to data centers and computing infrastructure, according to BlackRock Investment Institute's 2026 midyear outlook. The institute identified the AI buildout as an accelerating theme, noting that power, memory, chips and data centers are scarce inputs that will shape investment opportunities regardless of how the software layer evolves. BlackRock also downgraded emerging market equities from Overweight to Neutral, saying manufacturing strength alone does not guarantee attractive equity returns.
The repositioning signals a rotation from crowded AI hardware benchmarks toward what BlackRock calls "selective bottlenecks and catalysts" in physical AI. As AI applications expand into robotics, demand for sensors, batteries and rare earths will grow alongside traditional computing infrastructure, creating a broader set of investment opportunities beyond semiconductors.
Energy Emerges as the Binding Constraint
Energy demand is becoming the most significant near-term constraint on the AI buildout, and investors focused exclusively on semiconductors and software miss a critical part of the investment landscape. Data centers consume enormous amounts of electricity, and the expansion of AI computing capacity is creating demand growth that existing grid infrastructure was not designed to accommodate. Natural gas has attracted particular attention as a bridging fuel for data center power generation, with its reliability and scalability making it more practical than intermittent renewable sources for baseload requirements, according to Morgan Stanley Research, which identified the Future of Energy as one of its four key 2026 investment themes.
Grid infrastructure companies — transformers, transmission equipment and grid management software — are benefiting from a secular demand cycle that extends beyond the AI-specific buildout. For investors looking to access the AI theme without direct semiconductor exposure, energy and power infrastructure represent a complementary expression of the same secular trend, BlackRock said.
Physical AI Opens New Investment Avenues
The expansion of AI into physical applications — robotics, autonomous systems and industrial automation — creates demand for a different set of inputs than the software and chip layer. Sensors, batteries, rare earths and advanced manufacturing capabilities become scarce resources as AI moves from data centers into the real world. BlackRock's Li Wei said the firm is adjusting its strategy by expanding AI exposure away from the most crowded hardware benchmarks toward these physical AI-related sectors.
The U.S. remains BlackRock's preferred market for AI exposure, with the firm maintaining an overweight position on U.S. stocks. The Nasdaq Composite has gained about 12 percent this year, while the MSCI China index has fallen more than 10 percent. BlackRock Investment Institute said it sees opportunities in physical AI across geographies, including select infrastructure plays from China to Latin America, but emphasized that manufacturing strength alone does not guarantee attractive equity returns.
For investors, the shift toward physical AI broadens the opportunity set beyond the semiconductor names that have dominated the AI trade. S&P 500 consensus earnings growth of 24 percent for 2026 reflects AI's broad economic contribution, but investors need to stay selective about the price paid for that growth, according to J.P. Morgan Research, which flagged AI skepticism as a key risk given elevated valuations in the most crowded names.
This article is for informational purposes only and does not constitute investment advice.
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