AI spending increases inflation pressures, warns BlackRock

• Billions being invested in AI
• Returns a long way off
• Costs increasing in the short term

Artificial intelligence is poised to add to inflationary pressures in the near term, a research chief at asset manager BlackRock told AGBI.

Governments and companies have been channelling unprecedented sums into the technologies, infrastructure and raw materials.

Across the Gulf, AI projects need products that are in short supply, from advanced semiconductors and electricity to copper and grid equipment. 

“We’re seeing an explosion of spending into finite resources – chips, electricity, and then, prospectively, copper,” said Ben Powell, chief investment strategist at BlackRock Investment Institute. It is a subsidiary of the world’s largest asset manager, BlackRock, which had $14 trillion under management as of 2025. 

The Gulf region is accelerating its efforts to diversify its economies away from hydrocarbons amid softer energy prices. Capital expenditure could exceed $3 trillion in the next decade – spanning data centres, energy systems and transport infrastructure, according to estimates by publisher Meed.

Much of that investment is being pulled forward by AI, which requires massive upfront spending on compute power, power generation and cooling capacity.

Saudi Arabia’s Humain has secured more than $20 billion in new partnerships and is targeting 6.6 gigawatts of capacity by 2034. The UAE is positioning itself as a global centre for AI infrastructure, anchored by the 5GW G42 Stargate campus and Khazna Data Centers‘ 1GW expansion.

In addition, the UAE has 35 operational data centres and a $44 billion data centre investment pipeline, representing 55 percent of total GCC investments.

Supplied, BlackRock

MGX is the technology investment platform of Abu Dhabi sovereign wealth fund Mubadala and the emirate’s technology company G42. It is targeting deals across AI, semiconductors and enabling infrastructure that could push its assets under management beyond $100 billion within a few years, according to Bloomberg.

Estimates of corporate AI investment range between $5 trillion and $8 trillion globally through 2030, with the bulk of spending expected to occur in the US, according to BlackRock estimates. 

“If AI turns out to be this quasi-magical technology that generates a much more productive economy for everyone, then yes, it could be disinflationary,” he said. “I think a lot of people [misunderstand] this point because they [are skipping] 10 years in the future.”

The mismatch between investment and returns is acute. AI buildouts require heavy, front-loaded capital spending on data centres, power generation and transmission networks. Revenues, by contrast, should arrive later, once models, applications and commercial use cases scale.

Even if spending and revenues ultimately reconcile at the macro level, the near-term effect is rising costs.

“As investors, we’ve got to focus on reality,” Powell said. “If you look at the copper price as an example, increasing costs are reflecting a very significant demand shock in the face of supply that can’t adjust that quickly.”

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The Gulf does enjoy structural advantages. Governments can deploy power generation and grid capacity at scale and speed.

Utility-scale solar electricity costs of roughly $20 to $30 per megawatt-hour are among the lowest in the world, which give Gulf states a cost edge in powering AI infrastructure, according to data from BloombergNEF, the International Energy Agency and the International Renewable Energy Agency.

However, oil prices’ downward trend will be the biggest headwind for an energy-exporting region such as the Gulf, said Powell. 

“For now it does feel like there is a lot of supply that is keeping oil prices capped,” Powell said. “That can continue for the next several months, maybe even several quarters.

“And strangely, in a way, maybe that’s creating even more urgency around the need to diversify the economy, both in terms of funding sources and the role of non-energy sectors playing a much bigger part.”