KKR: AI boom to persist, warns of 1870s-style concentration

KKR expects AI-driven productivity gains to keep accelerating through the rest of the decade. The firm's mid-year report, distributed Thursday, warns that the flip side is a concentration of economic growth across fewer industries than at any point since the 1870s.

"The offset is that intensifying strategic competition will likely make economic growth more concentrated across fewer industries and, at times, more extreme than anything we have seen since the start of the second industrial revolution in the 1870s," wrote Henry H. McVey, head of global macro and asset allocation and CIO of KKR's balance sheet.

McVey described a market where parts of the economy are "starved" while others are "flush." Technology, high-end services and government spending are areas of what he called "enormously concentrated" growth. Defense and power sectors are the most likely winners when KKR looked at broader long-term trends, the report said. "There is a broad-based and growing focus on the security and resiliency of supply chains across nations and industries, despite higher costs for inputs."

McVey offered investors three specific calls. He said Japan and South Korea still look cheap, with earnings likely to surprise to the upside in both 2026 and 2027. China's property drag is the main reason KKR remains cautious on the country's assets, he added. The firm forecasts the yuan will strengthen as the U.S. dollar peaks, reaching about 6.5 per dollar by 2027.

Agriculture is joining energy security, defense and critical minerals as a strategic, policy-backed sector likely to attract sustained investment, McVey said. He noted that the USDA projects U.S. wheat production for the 2026-2027 season will be the lowest since 1972, with prices rising to three-year highs.