Blackstone's Jon Gray on AI, energy, and the $1.3T firm's biggest strategic pivot: picks-and-shovels investing in power and data centers

Jon Gray joined Blackstone straight out of Penn in 1992, when the firm had 75 people and $750 million in capital. It now manages over $1.3 trillion. He has spent most of that tenure in real estate and now serves as president and COO.

The picks-and-shovels pivot

Gray's clearest strategic message is that Blackstone has made power and data center infrastructure its biggest strategic bet — deliberately sidestepping the question of which AI companies win. The logic is that LLMs, application software, and incumbent enterprises all need the same physical substrate regardless of who comes out on top. For Blackstone, that means electricity generation and transmission, LNG, renewables, pipelines, electrical equipment, and the data centers themselves.

He frames this as the "picks and shovels" move: find the great theme, then invert it and ask what all the inputs are.

“Our company's spend on LLMs was up 15 fold Q1 of this year over last... The biggest theme beyond the data centers for us today is what's happening in electricity — the data centers, the robots, the autonomous vehicles, that reindustrialization, it all needs power... The picks and shovels: invest in that electricity, invest in those data centers, because you don't know who's going to win, but you do know they're all going to need AI factories.”

AI adoption inside the portfolio

Blackstone's portfolio spans 270 companies and 13,000 pieces of real estate, which gives Gray an unusually wide read on enterprise AI adoption. LLM spending across those portfolio companies was up 15-fold in Q1 this year versus Q1 last year, off a small base. Content creation — writing, coding, media — is where he sees the clearest early traction. Rules-based workflows like transaction processing, legal billing, and audit are next. Deployment inside complex organizations is still slow, and Gray is candid that the technology is moving faster than implementation.

Specific examples from the portfolio: an accounting firm automating tax and audit, Ancestry.com building immersive family-history narratives rather than static records, a lab-grown diamond grading company using computer vision, and a hospital revenue management business that Gray thinks could become a winner if it integrates AI while retaining client trust.

Moat erosion and the "Red Sea" framing

Gray describes the investment landscape as splitting into three groups. AI-native winners — LLM providers, application software, digital infrastructure — are straightforward to underwrite as beneficiaries. The physical world, things like medical supply distributors and warehouses, is largely unaffected and also relatively easy. The harder and more interesting group is what he calls the in-between: incumbent businesses in software, professional services, and information services where the outcome is genuinely uncertain.

His retail analogy is pointed. Twenty-five years into the Amazon era, Walmart is up roughly 7x, Costco up ~25x, and TJ Maxx up ~40x with a $180 billion market cap — while Sears, Kmart, and Toys R Us are gone. The survivors either had structural necessity (groceries) or a durable value proposition and the management to execute. He expects the same pattern to play out across software and services, with some incumbents thriving and others disappearing — and argues some of those uncertain businesses will get cheap enough to be attractive once the market gains confidence about which models survive.

Electricity as the second-order bet

Beyond data centers, Gray flags electrification as probably the largest thematic opportunity Blackstone is pursuing right now, separate from AI infrastructure specifically. Data centers, robotics, autonomous vehicles, and reindustrialization all converge on power demand. He describes the firm's exposure as spanning the full stack — generation, transmission, LNG, pipelines, electrical equipment, utility services.

Defense is the other theme he surfaces: every country is increasing defense spending, and he expects that to be a durable tailwind.

Gray's overall read is that investment risk has risen alongside opportunity. Anything caught in the AI uncertainty band will see multiple compression until the market can see stable ground — but that same compression will create entry points.