If you have been investing in artificial intelligence ( AI ), you likely started where most people do: the big-name software companies and the high-profile applications like Microsoft and Google, that everyone is talking about. It is easy to see why since these companies are the faces of the AI revolution.

However, as the dust settles on the initial excitement, many investors are realizing that their portfolios might be missing the bigger, more stable picture.

If as an investor, you are currently re-evaluating your approach, the question you should be asking is: “How can I move beyond just the software to capture the growth of the physical world that actually powers AI?”

But the shift from being a software-only investor to one who understands the physical backbone of AI is not just about changing stocks, but about changing how you view the entire economy.

An AI investor who wants to move beyond software must think like a builder, not a user, argues the BlackRock Investment Institute ( BII ) in its 2026 Midyear Global Outlook entitled “Scarcity vs. Abundance”.

If one reads behind the technical language of the report, it basically says: “When you use an AI tool, you are experiencing the software. But behind that query lies a massive, complex physical machine. Every time an AI ‘thinks’, it consumes electricity, relies on specialized memory and requires high-speed data transmission.”

Hence, the smartest way to play this trend isn’t necessarily guessing which AI app will win. Instead, an investor must look for the “bottlenecks” or the things that AI cannot exist without.

Whether a specific company’s software wins or loses, the infrastructure supporting it – such as data centres, power grids, advanced cooling systems and specialized hardware – will remain in high demand.

By focusing on these, an investor will be betting on the necessity of the technology, not just the popularity of a specific brand.

AI investing is moving beyond simple chatbots, the BII argues in its report, and into “physical AI” – such as robots in factories, automated supply chains and smart manufacturing – an evolution that requires a completely different set of components, particularly sensors, precision motors, specialized batteries and robotic arms.

Countries like Japan and China are already leading the way in this regard, integrating these technologies into their industrial strategy.

If an AI investment portfolio is purely focused on US-based software, points out Wei Li, BlackRock global chief investment strategist, it is likely missing out on the massive industrial expansion that is happening globally.

Investors often get trapped by labels like “tech”, “utility” or “industrials”, but in today’s world, those lines are blurring. The AI trade shows how cutting through the labels and focusing on the economic drivers is really critical in building a portfolio," Li notes during an online media briefing.

A company building electrical transformers or fibre-optic cables, for example, might be classified as an “industrial” business, but it is secretly an “AI play”, according to Prashant Perival, BlackRock’s portfolio manager for global emerging markets, as it is providing the critical infrastructure that allows a data centre to run.

Based on this, when building a portfolio, an investor should look past the industry labels and determine whether a company provides something that AI absolutely needs to function. If the answer is yes, the investor would be looking at a foundational investment rather than a speculative one.

As well, because the AI market is shifting so quickly, having a “set-it-and-forget-it” strategy has become becoming risky for investors.

“We are in a ‘polyfurcated’ world,” Li states, “where the market can head in several different directions based on interest rates, geopolitics and energy costs.”

In this environment, an investor needs to be more tactical since it is no longer enough to just own a “basket” of tech stocks.

“You need to identify parts of the market that act as ‘anchors’ or investments that provide steady income and hold value, like energy and infrastructure, alongside your growth holdings,” Li explains. “This balance protects you when the market gets volatile and ensures you are capturing growth across the entire stack, not just the top layer.”

By shifting the focus towards the physical infrastructure – such as power, hardware, cooling systems and robotics – a tech investor is essentially moving from betting on a trend to investing in the backbone of the future economy.

The most resilient portfolios today are built by those who stop looking for the “next big app” and start looking for the unavoidable tools that make the next big app possible.