KKR says AI productivity boom to keep on going — but warns of 'extreme' trend not seen since the 19th century

U.S.-based investment giant KKR expects the AI-driven productivity boom is only just getting started, but said it could mean growth is concentrated in just a few sectors.

That's according to the firm's mid-year report distributed Thursday.

While AI-driven productivity gains will play out in coming years, "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 balance sheet.

McVey described an investing landscape where some parts of the economy and markets are "starved," while others are "flush." Technology, high-end services and government spending are areas of "enormously concentrated" growth, he noted.

KKR said the defense and power sectors are the most likely winners when it looked at broader long-term trends. "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," the report said.

"We think Japan and Korea still look cheap, as earnings are likely to surprise on the upside in both 2026 and 2027," McVey said. He noted China's property drag is the main reason KKR still isn't overly optimistic on the country's assets.

However, KKR forecasts the Chinese currency will strengthen as the U.S. dollar peaks, with a forecast of about 6.5 yuan per greenback by 2027.

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