June 28 (Reuters) - Shares of AI-focused companies will be a major driver of returns for developed markets in a tough economic environment, BlackRock Investment Institute said, citing a current rally that is concentrated in a handful of technology stocks.

"S&P 500 gains have become increasingly concentrated in a handful of tech stocks, surpassing levels seen in the 2000s tech boom," BlackRock Investment Institute's team wrote in a mid-year outlook note.

"We think this unusual equity market shows a mega force like AI can be a big driver of returns even when the macro environment is not your friend," it said.

The institute has an over-weight allocation for AI-related shares in developed markets.

It also upgraded long-term government bonds of the euro region and the UK to neutral, and said it preferred short-dated U.S. Treasuries, mortgage-backed securities and high-grade credit.

"We think the current pricing of future euro area inflation above future U.S. inflation is unlikely to pan out given more aggressive European Central Bank rate hikes," the institute said, while downgrading the inflation-linked bonds of euro area. (Reporting by Susan Mathew in Bengaluru; Editing by Anil D'Silva)