MARKET UPDATE - Blackstone Warns: AI Will Create Massive Losers While Real Assets Win
Earlier this year, we wrote an article warning that the popular narrative of AI as a universal profit booster is likely wrong. While Wall Street and Silicon Valley expect AI to automate work, reduce headcount, and expand margins, we argued the opposite. AI is far more likely to destroy value across most businesses by lowering barriers to entry, intensifying competition, and accelerating margin compression.
Here is how that plays out in practice.
AI opens the door to waves of new competitors and saturates every industry with abundant, low-cost output. What once required large teams, significant capital, and specialized, costly expertise can now be replicated instantly at a very low cost. As competition scales faster than demand, prices fall faster than costs, and moats that once protected businesses erode.
We are already seeing the early signs of value destruction. Content and media businesses face collapsing ad rates as AI floods the internet with articles, videos, and commentary that are good enough for the average consumer. Software companies built on basic automation are losing pricing power as AI replicates their features at close to zero cost. Professional service firms, from copywriters to law offices, are being undercut by AI tools that draft documents, analyze data, and produce deliverables instantly. Even consumer brands are now starting to see weaker loyalty as AI makes pricing transparency effortless and allows small competitors to compete even with far fewer resources.
Most businesses lose value in this environment. A market that once supported five competitors may soon support fifty. But while the majority of companies face structural headwinds, a small group of winners is emerging.
Infrastructure providers: NVIDIA, Microsoft, Amazon, OpenAI
Monopoly data owners: Google, Bloomberg, S&P Global
Physical asset owners: especially real estate
This brings us to Jon Gray, President of Blackstone (BX), who just described the same dynamic in a new interview.
He explains why AI will create enormous winners in real assets even as a lot of traditional businesses lose value. His perspective aligns with our thesis, and it carries significant weight given Blackstone’s scale as the world’s leading alternative asset manager.
Skip to 17:04 and listen to what he says:
He confirms that the disruption and potential value destruction caused by AI across vast numbers of businesses is what keeps them up at night.
He does not go into detail, but the forces he refers to are already taking shape:
AI lowers barriers to entry. What once required significant resources can now be built by a solo founder. This is reshaping industries from law and design to accounting, education, healthcare, retail, and more.
More competition compresses margins. When supply rises, and demand stays constant, prices fall. AI is inherently deflationary, and deflation is kryptonite for traditional business models.
Expert-driven industries become commoditized. AI can draft contracts, design ads, diagnose symptoms, and analyze financials. When high-quality output becomes abundant and cheap, differentiation collapses.
Platforms become replaceable. In an AI-first world, users ask assistants to handle tasks directly. Search engines, delivery apps, and marketplaces risk being bypassed entirely.
Deflation erodes pricing power. Revenues shrink faster than companies can cut costs. Even large incumbents in many industries are likely to struggle to maintain growth.
All of this results in significant value destruction across lots of businesses.
But one sector is positioned to benefit: real assets.
A Hidden Winner: Scarce Real Assets
At the same time, Joh Gray also confirms that essential real assets are the exception that will not be disrupted, and could in fact become some of the biggest winners of the AI revolution. While AI is undermining profitability, eroding moats, and compressing margins across a wide range of industries, real estate stands on the opposite side of this trend. It benefits directly from the economic forces that AI unleashes.
I think that there are four main reasons for this:
1. AI Cannot Replace Land, Buildings, Permits, or Physical Infrastructure
Most products, services, and business models will become easier to replicate as AI and robotics improve. Real estate much less so.
Land is scarce, immovable, and regulated. Construction requires materials, labor, financing, and permitting. None of these can be automated away or replicated at zero marginal cost.
AI may transform how businesses operate, but it cannot create new supply in locations where demand is the strongest. Scarce, well-located property retains and grows in value precisely because it is insulated from the forces that make other industries more competitive.
Real estate also fulfills needs that remain constant regardless of technological change:
A place to live
A place to work
A place to have fun
A place to shop
A place to store
A place to manufacture
A place to compute
Etc.
In a world where AI makes many outputs abundant, the value of irreplaceable physical locations becomes even more obvious.
2. AI Is Deflationary, and Deflation Pushes Interest Rates Lower, Which Lifts Real Estate Values
AI increases efficiency, reduces costs, and accelerates output across entire sectors of the economy. This creates structural deflationary pressure. As prices fall and margins shrink, central banks respond with lower interest rates and looser monetary policy.
Lower rates compress the cap rates of properties, increasing their value, all while also lowering the interest expense, increasing cash flows.
Historically, long stretches of low rates have supported strong performance in high-quality real estate. AI may cause widespread disruption, but the macroeconomic environment it produces should be highly favorable to property owners.
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3. AI Drives More Business Formation, and More Businesses Create More Competition for Space
AI reduces the cost and complexity of starting a business. As a result, even if the average business earns less in the future, the number of businesses is likely to rise. More entrepreneurs, more experimentation, and more small-scale ventures all translate to more physical space requirements.
Businesses will still need:
Data centers
Labs
Offices (especially flexible office space, such as what IWG is offering)
Distribution centers
Manufacturing plants
Warehouses
Self storage
Billboards
Etc.
Even in a world where margins are thinner, companies require real-world infrastructure to operate. The lower barriers to entry will lead to a boom in new business formation and increase competition for high-quality, well-located space.
4. Real Estate Becomes the Anti-AI Asset — A Safe Haven in a Margin-Compressed World
As it becomes clear that AI is going to compress profitability across a wide variety of industries, investor psychology changes. The priority shifts from pursuing uncertain growth to securing dependable, long-term cash flow.
Investors will increasingly seek assets that:
Cannot be replicated
Provide stable, contractual income
Serve needs that do not change with technology
Real estate offers all of these traits. In a world where AI disrupts business models, weakens competitive advantages, and compresses margins, real estate stands out as a source of scarcity, stability, and predictable income.
In this world, real estate does not merely survive the AI era. It becomes the shelter from it, likely attracting growing allocations from investors.
As AI reshapes the economy, the most valuable assets will be those that cannot be automated, copied, or replaced. Real estate sits at the center of that category.
Conclusion: Think Differently About AI
The dominant narrative assumes AI will boost profits broadly. But the underlying economics point to a different outcome:
AI removes barriers and floods markets with supply
Pricing power collapses
Margin compression becomes structural
Only a few infrastructure and data owners win
Capital rotates toward scarce, income-producing real assets
The AI age may not be about which stocks you pick. It may be about owning the land where AI runs, stores its data, and delivers its goods.
If you believe AI will change the world, ask a simple question: what can AI not replicate?
Then invest there.
Real assets will not just withstand the AI era. They may gain enormous value because of it.
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