Private Markets Will Drive AI Value Creation

Anastasia Amoroso, Chief Investment Strategist at Partners Group, shared her outlook on the economy and the role of artificial intelligence in driving future value. Speaking on Bloomberg Radio, Amoroso detailed how real-time data, particularly concerning shelter inflation, suggests a potential cooling that could influence interest rate decisions. She also expressed optimism about the continued strength of U.S. equities, citing robust corporate earnings and expanding profit margins as key drivers.

Inflationary Trends and Real-Time Data

Amoroso highlighted that while inflation has been a persistent concern, a significant portion of it is attributed to shelter costs. However, she pointed to real-time data from sources like Zillow and CoStar, which indicate that rent inflation may be running at 1-2% or even negative in some cases. If this data is used as a proxy for shelter inflation in the Consumer Price Index (CPI), it suggests that overall inflation could be below 2% when accounting for these real-world figures. This perspective challenges the notion that further interest rate hikes are a foregone conclusion.

U.S. Equities Outlook and Corporate Profits

Despite the ongoing economic uncertainties, Amoroso remains constructive on U.S. equities for the remainder of the year. She attributes this optimism to the strong performance of corporate earnings, with forecasts predicting continued expansion in profit margins. Amoroso noted that the S&P 500 earnings, projected to reach $358, could climb to $405 by the end of next year. The strength of the economy is further evidenced by a 15% revenue growth for the S&P 500, a figure not seen in quite some time.

The full discussion can be found on Bloomberg Podcast's YouTube channel.

The True Value of AI: Beyond Frontier Models

Shifting the focus to artificial intelligence, Amoroso emphasized that the real value of AI lies not in the pursuit of the most advanced frontier models, but in its practical applications. She described AI as a shortcut to productivity, designed to solve friction and everyday problems that are otherwise difficult to address. This includes tasks like efficiently finding and analyzing disparate data to arrive at conclusions, optimizing supply chains, dynamic pricing, and streamlining insurance underwriting.

AI adoption in private markets

Amoroso shared insights into AI adoption within private markets, noting that 90% of the companies in Partners Group's portfolio have AI initiatives. This deliberate strategy involves embedding AI by assigning C-suite and board members to oversee these efforts. She contrasted this with the broader enterprise AI adoption rate of 35%, and venture capital-backed companies at 50-70%. Amoroso believes that while public markets have seen benefits from AI, private markets, particularly those focused on the middle market, will be the primary drivers of long-term AI value creation. She highlighted a portfolio company that reduced policy processing time by 94% through AI automation as a prime example of this impact.

Concerns and Caution on AI Spending

While optimistic about AI's potential, Amoroso also expressed caution regarding the valuations of some frontier AI labs and technology companies, noting that some are trading at 30-40 times revenues. She raised concerns about the sustainability of these valuations and their ability to withstand initial earnings reports. Additionally, she stressed the importance of monitoring the accumulation of leverage in the market, particularly with asset-backed finance and circular deals, to avoid potential economic bubbles.