The AI infrastructure build-out has not yet peaked. In fact, AI cap ex spending is accelerating, said Ben Powell, chief investment strategist for APAC at the BlackRock Investment Institute.
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Speaking at Abu Dhabi Finance Week on Monday, Powell outlined his investment thesis: the AI “capex super boom” is creating a massive opportunity, but the smartest money may not be in the hyperscalers like Alphabet, Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG), Microsoft Corp. (NASDAQ:MSFT) and Meta Platforms, Inc. (NASDAQ:META).
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Instead, the BlackRock strategist pointed to the “picks and shovels” strategy of investing in the companies building the physical infrastructure that powers AI.
Follow the Capex
Powell said that the hyperscalers are locked in a “winner-takes-all” arms race to survive, where the tech giants are forced to spend unprecedented amounts of capital on infrastructure.
The hyperscalers' race to build-out AI capacity guarantees a massive, sustained flow of cash into the pockets of their suppliers.
What are the AI ‘Picks and Shovels?'
In the 1849 Gold Rush, the surest way to get rich wasn’t to dig for gold, but to sell picks, shovels and denim jeans to the miners.
Powell identified the modern equivalents in the context of AI:
- Chipmakers: The obvious beneficiaries providing AI processing power (GPUs). Examples include NVIDIA Corp. (NASDAQ:NVDA) and Broadcom, Inc. (NASDAQ:AVGO).
- Energy Producers: AI data centers need enormous amounts of power. Utilities and renewable energy firms like NextEra Energy, Inc. (NYSE:NEE) and Constellation Energy Corp. (NASDAQ:CCEG) are essential to keeping the lights on.
- Commodities & Materials: Specifically, copper and wiring manufacturers needed to connect the grid and data centers physically. Examples include Freeport-McMoRan, Inc. (NYSE:FCX) and Southern Copper Corp. (NYSE:SCCO).
- Infrastructure: The builders of the data centers and cooling systems like Vertiv Holdings, LLC (NYSE:VRT) and EMCOR Group Inc. (NYSE:EME) .
The Takeaway
Hyperscalers face the risks of overspending and intense competition, while the “picks and shovels” companies have a clear line of sight to revenue.
"The capex deluge continues. The money is very, very clear," Powell said.
Investors can benefit from the AI revolution by looking to the "traditional picks and shovels capex super boom, which still feels like it's got more to go," he added.
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