Market Views: Compute Scarcity, Higher Rates, and Where We're Investing 

Jon Gray: Okay, this is a lot of work. Can we just get a bot or AI to do this instead of me?

Crew: No.

Jon Gray: Okay, I'm ready. Let's go. Three quick takeaways. Very volatile quarter in markets. Energy prices went up 30%, 10-year treasury's up 80 basis points. I think the premium on investing with people who take a long-term view and do it in a disciplined way, super important. Second thing I'd say is… There's a lot of concern about AI and AI infrastructure. People are worried that what's happening may not be sensible. The word bubble is being thrown around a lot. We actually believe that there's still a very significant supply-demand imbalance, that it's hard for the AI infrastructure to keep up with the demand, and that's very positive for the AI infrastructure we invest in, but lots of focus around that. And then the third thing I'd say, the combination of the AI demand for capital and the war and inflation is driving cost of capital up around the world. That has an impact on asset values, multiples, and it puts a real premium in investing in faster growing sectors. So our selection of good neighborhoods, areas like life sciences, logistics, defense, energy. Places like India where growth is faster that can absorb this higher cost of capital, that's super important.

Jay Gillespie: Okay, Jon, 60 second recap of the quarter and go.

Jon Gray: Blackstone, third quarter. We invested a lot of money, much of it in the physical world, investments in a renewable company, in a waste management business, in a pan-European hotel portfolio. We did a lot of very interesting financings around airline loyalty program. We did chip financing announcement with NVIDIA. We continue to do a bunch of financings around energy infrastructure. We sold a number of businesses, including in Europe, a gaming and an events business. Took a couple of companies public, most notably the best, Jersey Mike’s. We continued to grow our wealth platform. Our partnership with Wellington and Vanguard expanded into a whole range of products which we're excited about. We had our CIO conference, which was a lot of fun. I got to do my Where's the Beef talk on AI infrastructure. But the most important thing is we delivered for our customers in the quarter. That's our North Star. We beat public indices across the board with our flagship strategies. That is what we are always focused on.

Jay Gillespie: All right, we'll give it to you. It was a little over, but nailed it.

Jon Gray: The number one question today is, are we in an AI bubble? And how bad is it gonna be? And I like to remind people that in a classic investment bubble, what you get is enormous spend of capital to build capacity to meet some estimated future demand. That's what happened with railroads at the end of the 19th century. It's what happened with telecom infrastructure at the end of the 20th century. And by the way, in both cases, it was done with a lot of leverage. Now let's talk about what's happening with AI infrastructure today. We're seeing the exact opposite. In this case, the demand is exploding upward. Our companies are spending 20 times more on models(1). Individuals are using these tools with things like Instinct and Muse, their usage is going up. So demand we see everywhere exploding going up to the right, and supply is behind as opposed to ahead. And most of the supply is being contracted by the biggest, most well-capitalized companies in the world. And today, even with their balance sheets, because of the difficulty of getting entitlements, community pushbacks, shortages of turbines, difficulty of building power plants, shortages of chips, and then the basic problem of amassing tens of billions of dollars, the supply is falling further behind against that demand. And that's why we're investing into that constraint. The scarce thing today, which you're always looking for in economics, is the AI infrastructure. It's not keeping up with the demand which is growing so rapidly.

In a world of abundance driven by intelligence, the question is, what becomes scarce? And one of the things that's scarce are human experiences because you can't experience a sporting event virtually. You want to be there. That team is very valuable. It's why we invested in a cricket team in India. It's way owning beachfront properties is very valuable. Art, those human experiences, which are in some way limited, investing in those, the physical assets around them, the teams or the IP, the brands, that to us has a lot of value. And so it's a very bifurcated investment world, but you're looking for things with real scarcity. And these special human experience live events, they fall into that bucket.

Well, there's no question that when cost of capital goes up, that's a headwind for investing because the present value of cash flows is less. And when there are rate increases, market participants get more nervous. And so you see M&A slow a bit, you see the IPO window sometimes close for a period of time. And then things settle when people have a sense, oh, this is maybe a new level of rates. So the key is as an investor, find those faster growing sectors to absorb this higher cost of capital.

What I'd say in real estate is it's facing the headwind of higher rates. No question about it. But at the same time that's happening, it's got some real tailwinds. Debt availability in the space is very positive. Spreads are quite reasonable. And fundamentals on the back of very limited new supply and a strong economy are quite good. So we're seeing record leasing volume in our logistics area. We're seeing a hotel same store sales up 6% this year versus flat last year(2). And that backdrop is allowing real estate to power through, particularly when you layer in the data center business, where of course there's tremendous leasing activity.

It's interesting. There was a big private credit scare at the beginning of the year, and that has not come to pass. We said at the time that fundamentals and credit were much better than people were talking about, that there was a small tail of deals from ‘21, ‘22, but overall we were seeing very healthy revenue and cash flow growth, and that's what we've continue to see. Interestingly, for floating rate lenders, as rates go up, the returns you get paid as a lender goes up. It's the opposite, the inverse, of what you see as an equity investor. And so in a lot of ways, credit's being seen as an attractive alternative in a higher rate environment. We're also seeing a lot of interest in asset-based credit, not just lending to companies, but lending to things like aircraft and railroads and all sorts of physical infrastructure. So credit overall, metrics are pretty healthy. And returns should be going up on the back of this higher yield environment.

My biggest takeaway as we leave another quarter of high volatility characterized by geopolitical conflict and higher rates and markets moving from pillar to post is the importance of long-term thinking, disciplined investing, not sort of going on the news of the day. But identifying long-term trends, good neighborhoods, identifying really good sectors, putting in place the right management team, and then having a longer-term view. And that's what our whole firm is about. It's not about day trading. It's about delivering value, compounding over long periods of time. And the discipline of our process, our people, and our focus at looking where the world's heading. I believe that gives us an edge in terms of delivering for our clients.

Notes:
1. Refers to monthly spending by equity-owned portfolio companies with two leading LLM companies.
2. Sources: Logistics: Blackstone proprietary data. Hotels same-store growth: STR, as of September 30, 2026. Data Centers: Blackstone Proprietary Data, as of October 2026. Reflects total leasing for Blackstone’s global data center portfolio in 2026, including signed leasing year-to-date plus expected leasing for the balance of the year. There can be no assurance that such leases will be completed as expected or at all.

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