The artificial intelligence (AI) rally seen on Wall Street in the United States is now expanding beyond the technology sector to so-called 'pick-and-shovel' stocks. Following technology companies directly related to AI, such as Nvidia and Microsoft (MS), utility, energy, and materials companies expected to benefit from the AI boom are gaining attention on Wall Street.
The daily Wall Street Journal (WSJ) reported on the 27th (local time) that as the AI boom continues for more than a year, investors are looking for winners among traditional industries in pick-and-shovel stocks. The pick-and-shovel investment strategy focuses on the fact that during the 19th-century gold rush, stores selling picks and shovels made more stable and consistent profits than those searching for gold. Utility, energy, and materials companies expected to benefit from the AI boom due to data center expansion fall into this category.
According to the report, the utility sector of the S&P 500 index has risen more than 15% over the past three months, showing the largest increase among all sectors. This is due to expectations that power demand in the U.S. will surge as the construction of data centers with high electricity consumption increases. During this period, energy (6.4%) and materials stocks (5.1%) also outperformed the overall S&P 500 index increase (4.2%).
Since the beginning of this year, the stock price of Vertiv Holdings, a digital infrastructure supplier, has risen by 121% as of the closing price on the 24th. This company manufactures equipment that supplies power and cools data centers. First-quarter new orders increased by 60% compared to the same period last year. Eaton, which makes power management equipment, and Johnson Controls, which manufactures electronic systems for commercial buildings, showed stock price increases of 41% and 28%, respectively, compared to the beginning of the year. The Global X US Infrastructure Development Exchange-Traded Fund (ETF) has risen more than 13% this year. During the same period, the S&P 500 index rose about 11%.
Lauren Goodwin, Chief Market Strategist at New York Life Investments, evaluated that "there are investment opportunities in data center construction and operation, power, and utility companies." Nadia Novell, U.S. Chief Equity Strategist for Global Asset Management at UBS, also emphasized, "AI-related trades are expanding. Investors are no longer relying on a single stock," adding, "Semiconductors are fundamental, but they do not make up everything."
The earnings report of Nvidia, the AI leader released last week, confirmed the expanding demand related to AI capabilities. Jensen Huang, CEO of Nvidia, emphasized the current data center investment status during the earnings conference call, stating, "The next industrial revolution has begun," and "Companies and countries are converting existing data centers into 'AI factories.'"
Goldman Sachs also announced earlier that mentions of AI increased in first-quarter corporate earnings reports. In particular, in the energy sector, which is expected to benefit from the AI boom, only 19% of companies mentioned AI in their earnings reports a year ago, but this figure surged to 66% this year.
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