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KKR Projects AI-Driven Productivity to Concentrate Growth in Defense, Power, and Strategic Sectors
KKR’s mid‑year outlook, released Thursday, warns that the current AI productivity boom will not lift every sector equally—only a handful, especially defense, power and other strategic industries, are poised to capture the bulk of the upside.
In the opening note, Henry H. McVey, KKR’s head of global macro and asset allocation, cautions that while AI‑enabled gains will continue to expand over the next few years, the accompanying “strategic competition” will likely make economic growth more concentrated across fewer industries. McVey likens the intensity of this concentration to the most extreme periods since the Second Industrial Revolution of the late 19th century.
The report singles out defense and power as the most promising long‑term winners. It observes a broad‑based, growing focus on the security and resiliency of supply chains across nations and industries, even as input costs rise. That emphasis on supply‑chain resilience is tied to escalating geopolitical tensions and the need for domestic production of critical components.
KKR also signals a geographic shift in investment focus. The firm projects that Asia will continue to outperform both public and private markets. According to the outlook, Japan and Korea remain “cheap” relative to their earnings potential, with upside expected in 2026 and 2027. China, however, is viewed more cautiously because of a “property drag” that the firm believes will limit the country’s asset performance.
Currency dynamics feature prominently in the analysis. KKR forecasts that the Chinese yuan will strengthen as the U.S. dollar peaks, projecting a rate of about 6.5 yuan per greenback by 2027.
In a somewhat unexpected addition, the report lists wheat as a strategic, policy‑backed sector likely to attract sustained investment. The United States Department of Agriculture (USDA) has projected that U.S. wheat production for 2026‑27 will be the lowest since 1972, a trend that could push prices toward three‑year highs.
KKR’s analysis suggests that the convergence of AI productivity, supply‑chain security concerns, and commodity price pressures will create a distinct investment landscape. While AI is expected to lift productivity across many sectors, the gains will be uneven, concentrating wealth in a small set of high‑growth industries. The report’s emphasis on defense, power, and strategic commodities reflects a belief that these sectors will benefit most from the dual forces of technology adoption and geopolitical risk.
The mid‑year outlook also touches on broader market dynamics. The firm notes that the AI boom is still in its early stages, and that the full macroeconomic impact of AI remains uncertain. In this context, the report urges investors to focus on sectors that are likely to experience the most significant upside while remaining mindful of the concentration risk that accompanies such growth.
In summary, KKR’s latest outlook frames the AI productivity wave as a driver of uneven economic expansion, with defense, power, and strategic commodities positioned to capture the majority of the gains. The firm’s view on Asia’s continued outperformance, the strengthening of the yuan, and the rising importance of wheat as a strategic asset provide a roadmap for investors seeking to navigate the evolving investment landscape.
The report does not provide specific investment recommendations but highlights the sectors and regions that KKR believes will be most affected by AI‑driven productivity and geopolitical shifts. Investors and analysts will likely monitor how these projections play out in the coming months, particularly as AI adoption accelerates and supply‑chain concerns continue to shape global economic activity.
In the opening note, Henry H. McVey, KKR’s head of global macro and asset allocation, cautions that while AI‑enabled gains will continue to expand over the next few years, the accompanying “strategic competition” will likely make economic growth more concentrated across fewer industries. McVey likens the intensity of this concentration to the most extreme periods since the Second Industrial Revolution of the late 19th century.
The report singles out defense and power as the most promising long‑term winners. It observes a broad‑based, growing focus on the security and resiliency of supply chains across nations and industries, even as input costs rise. That emphasis on supply‑chain resilience is tied to escalating geopolitical tensions and the need for domestic production of critical components.
KKR also signals a geographic shift in investment focus. The firm projects that Asia will continue to outperform both public and private markets. According to the outlook, Japan and Korea remain “cheap” relative to their earnings potential, with upside expected in 2026 and 2027. China, however, is viewed more cautiously because of a “property drag” that the firm believes will limit the country’s asset performance.
Currency dynamics feature prominently in the analysis. KKR forecasts that the Chinese yuan will strengthen as the U.S. dollar peaks, projecting a rate of about 6.5 yuan per greenback by 2027.
In a somewhat unexpected addition, the report lists wheat as a strategic, policy‑backed sector likely to attract sustained investment. The United States Department of Agriculture (USDA) has projected that U.S. wheat production for 2026‑27 will be the lowest since 1972, a trend that could push prices toward three‑year highs.
KKR’s analysis suggests that the convergence of AI productivity, supply‑chain security concerns, and commodity price pressures will create a distinct investment landscape. While AI is expected to lift productivity across many sectors, the gains will be uneven, concentrating wealth in a small set of high‑growth industries. The report’s emphasis on defense, power, and strategic commodities reflects a belief that these sectors will benefit most from the dual forces of technology adoption and geopolitical risk.
The mid‑year outlook also touches on broader market dynamics. The firm notes that the AI boom is still in its early stages, and that the full macroeconomic impact of AI remains uncertain. In this context, the report urges investors to focus on sectors that are likely to experience the most significant upside while remaining mindful of the concentration risk that accompanies such growth.
In summary, KKR’s latest outlook frames the AI productivity wave as a driver of uneven economic expansion, with defense, power, and strategic commodities positioned to capture the majority of the gains. The firm’s view on Asia’s continued outperformance, the strengthening of the yuan, and the rising importance of wheat as a strategic asset provide a roadmap for investors seeking to navigate the evolving investment landscape.
The report does not provide specific investment recommendations but highlights the sectors and regions that KKR believes will be most affected by AI‑driven productivity and geopolitical shifts. Investors and analysts will likely monitor how these projections play out in the coming months, particularly as AI adoption accelerates and supply‑chain concerns continue to shape global economic activity.
