BX Earnings Recap
Beat 7 of last 7 quarters
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Blackstone's quarter underscores the massive capital demand for AI infrastructure, with the firm deploying across data centers, power, and compute financing. The creation of new platforms like BX DC and the Broadcom financing vehicle highlights the scale of investment needed, and the firm's ability to monetize assets at multibillion-dollar gains validates the value of AI-related infrastructure. This signals continued robust activity for suppliers and partners in the AI infrastructure ecosystem.
Blackstone reported distributable earnings of $2.0 billion, up 26% year-over-year, with fee-related earnings up 22% to $1.8 billion. Total inflows reached nearly $70 billion in the quarter, lifting AUM to a record $1.35 trillion, up 11% year-over-year. The firm highlighted significant AI-related activity, including new partnerships with Google, Anthropic, and Broadcom, and the launch of BX DC, a data center REIT. Investment performance was strong, with infrastructure appreciating 7.2% in the quarter and 29% over the last 12 months, and AI-related holdings comprising 9 of the 10 largest markups. Net realizations rose 27% to $414 million, and the firm executed several dispositions including a data center sale at a multibillion-dollar gain.
Management struck a confident tone, pointing to continued momentum in AI-driven infrastructure and fundraising across all channels. They expect base management fee growth to remain similar in Q3 and return to double-digit growth in 2027, driven by full-year benefit of new fund activations, seasoning of perpetual strategies, and stabilization in real estate base fees. Net realizations are expected to decelerate sequentially in Q3 but pick up robustly in Q4 and into 2027, supported by a strengthening IPO market and active M&A in energy transition. They also highlighted a large pipeline of transaction fees and continued growth in insurance and private wealth channels, with new products like the Wellington/Vanguard alliance and BXHF expected to contribute. Overall, they see the firm well-positioned for strong 2027 earnings growth.
“Blackstone has become 1 of the largest private capital providers in the AI ecosystem. A position that gives our investors unique access to the remarkable opportunities emerging in this area and allows them to share directly in the extraordinary potential upside.”
on AI positioning
“We expect to lease over 3x more capacity this year than any other year in our history. We execute on our pipeline, our data center platform could double over the next few years.”
on Data center growth
“We definitely see today a global shortage of compute. And there is obviously a lot of dollars being invested, but the dollars are not keeping up with the demand.”
on Compute shortage
Could you talk through the building blocks that get base management fees to double-digit growth next year?
Michael Chae outlined several drivers: full-year benefit of new drawdown funds (BCEP X, Asia III, energy transition), seasoning and expansion of perpetual strategies (BXP, infrastructure, BXMA), growth in credit insurance and eventual stabilization in retail flows, and stabilization in real estate base fees. He also noted $84 billion of credit dry powder, over double the level at the beginning of 2024, which will earn fees as invested.
Could compute capacity emerge as a standalone investable asset class, and how are you positioning for that?
Jonathan Gray said there is a global shortage of compute, and assets that are built and operating are worth more. He sees the market growing very large, similar to mobile towers, and BXDC has potential to grow significantly, including through sales from hyperscalers. Michael Chae added that nearly every business at the firm is positioned to be a capital solutions provider to the AI ecosystem.
Do you have line of sight into private real estate returns improving, and how could that translate into LP demand?
Jonathan Gray said fundamentals are improving, with logistics leasing up 26% at Link Logistics, hotels RevPAR up 5%, and New York office vacancies down from 21.5% to 14.5%. He noted public REITs are forward-looking, and once the war settles, private real estate recovery should pick up pace.