Key Takeaways
- • Jared Gross, head of institutional portfolio strategy at J.P. Morgan Asset Management, expects roughly $5 trillion of capital to flow into AI physical infrastructure over the next five years, which he describes as a generational opportunity for allocators.
- • Gross sees the AI boom in early stages and argues the next phase will bring more critical market judgment on the scale and sustainability of AI revenues against capital-intensive costs.
- • Suppliers to the AI build-out, including advanced chips, memory, data center infrastructure and power generation, may offer the best opportunities early in the cycle, while perceived AI-vulnerable firms have faced sharp, at times indiscriminate, sell-offs.
- • Gross recommends diversifying into defensive assets such as regulated utilities, core real estate, investment grade debt and core bonds, and keeping AI laggards in Europe, Japan and certain emerging markets for lower-multiple exposure.
- • Gross argues that active managers will gain more opportunity as the build-out matures and competitive strengths and weaknesses among AI providers emerge.
Summary
Jared Gross, head of institutional portfolio strategy at J.P. Morgan Asset Management, writes that the size and pace of the artificial intelligence investment boom are unprecedented. He expects an infusion of roughly $5 trillion over the next five years to bring the physical infrastructure of AI into place, describing it as an "all hands on deck" moment for capital markets. While he characterizes the opportunity as generational for asset allocators, he notes it also poses challenges for portfolio diversification and risk management.
Drawing on past capital investment booms, Gross argues that the AI cycle has so far been driven by enthusiastic investors supplying ample capital for the build-out. He believes the next phase may bring more critical judgment from markets about the scale and sustainability of revenues needed to operate capital-intensive technology over time. He expects disruption among key players to be inevitable, but believes widespread adoption will ultimately lift productivity and growth.
In public markets, Gross suggests suppliers to the AI boom, often called the "picks and shovels" trade, may offer the best opportunities in the early phase. He cites advanced chips, memory, data center infrastructure and power generation as examples. Firms and sectors seen as vulnerable to AI have experienced significant and at times indiscriminate sell-offs. He notes that the strong relative performance of passive strategies likely reflects broad market consensus on early winners and losers, which has driven rising market concentration. As the build-out matures, he argues skilled active managers will have more unrealized upside to pursue.
Gross views the "Core AI" ecosystem, including model providers and large technology firms subsidizing data center construction, as requiring diversification. Allocators are gaining AI exposure across public equity, venture capital and growth equity, private credit and infrastructure, all of which depend on AI firms ultimately achieving sustainable profits. He warns that competition among models may pressure pricing while capex keeps operator costs high, and that diversification may not fully solve the risk of a broader shakeout among core AI providers. Defensive assets, including regulated utilities, core real estate, investment grade debt and core bonds, may therefore play a critical risk management role, particularly given today's elevated yield environment.
Looking further out, Gross expects a highly competitive AI ecosystem to increase innovation and reduce costs for end users. He believes global equity markets, particularly AI "laggards" in Europe, Japan and certain emerging markets, should remain in portfolios as a less expensive, lower-multiple way to access AI's long-term potential. He concludes that the AI story may not follow a predictable path, and that investors will need both tactical flexibility and strategic discipline.
Drawing on past capital investment booms, Gross argues that the AI cycle has so far been driven by enthusiastic investors supplying ample capital for the build-out. He believes the next phase may bring more critical judgment from markets about the scale and sustainability of revenues needed to operate capital-intensive technology over time. He expects disruption among key players to be inevitable, but believes widespread adoption will ultimately lift productivity and growth.
In public markets, Gross suggests suppliers to the AI boom, often called the "picks and shovels" trade, may offer the best opportunities in the early phase. He cites advanced chips, memory, data center infrastructure and power generation as examples. Firms and sectors seen as vulnerable to AI have experienced significant and at times indiscriminate sell-offs. He notes that the strong relative performance of passive strategies likely reflects broad market consensus on early winners and losers, which has driven rising market concentration. As the build-out matures, he argues skilled active managers will have more unrealized upside to pursue.
Gross views the "Core AI" ecosystem, including model providers and large technology firms subsidizing data center construction, as requiring diversification. Allocators are gaining AI exposure across public equity, venture capital and growth equity, private credit and infrastructure, all of which depend on AI firms ultimately achieving sustainable profits. He warns that competition among models may pressure pricing while capex keeps operator costs high, and that diversification may not fully solve the risk of a broader shakeout among core AI providers. Defensive assets, including regulated utilities, core real estate, investment grade debt and core bonds, may therefore play a critical risk management role, particularly given today's elevated yield environment.
Looking further out, Gross expects a highly competitive AI ecosystem to increase innovation and reduce costs for end users. He believes global equity markets, particularly AI "laggards" in Europe, Japan and certain emerging markets, should remain in portfolios as a less expensive, lower-multiple way to access AI's long-term potential. He concludes that the AI story may not follow a predictable path, and that investors will need both tactical flexibility and strategic discipline.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.