Here's a counterintuitive thought: the best way to profit from the AI revolution might not be betting on the companies actually building AI. Instead, you might want to own the companies selling them the tools to do it.
That's the thesis from Ben Powell, chief investment strategist for APAC at the BlackRock Investment Institute, who spoke at Abu Dhabi Finance Week on Monday. His argument? The AI infrastructure buildout hasn't peaked yet. In fact, capital expenditure spending on AI is accelerating, and that creates a compelling opportunity for investors who know where to look.
Powell isn't betting on the hyperscalers like Alphabet Inc. (GOOGL) (GOOG), Microsoft Corp. (MSFT), or Meta Platforms, Inc. (META). Instead, he's focused on what he calls the "picks and shovels" companies—the businesses building the physical infrastructure that powers AI.
Follow The Money, Not The Hype
Powell's logic is straightforward. The hyperscalers are trapped in a "winner-takes-all" arms race where survival requires spending massive amounts of capital on infrastructure. They don't really have a choice—if they fall behind, they risk becoming irrelevant. This competitive dynamic guarantees a sustained, massive flow of cash into the pockets of their suppliers.
The hyperscalers face the risks of overspending and brutal competition. But the companies supplying them? They have a much clearer path to revenue, regardless of which tech giant ultimately "wins" the AI race.
What Exactly Are The AI Picks And Shovels?
The term comes from the 1849 Gold Rush, when the people who got reliably rich weren't the prospectors digging for gold, but the merchants selling picks, shovels, and Levi's jeans to the miners. Powell identified the modern equivalents in AI:
Chipmakers: These are the obvious winners, providing the GPUs and processing power that make AI possible. Think NVIDIA Corp. (NVDA) and Broadcom, Inc. (AVGO).
Energy Producers: AI data centers consume enormous amounts of electricity. Someone has to keep the lights on, which makes utilities and renewable energy companies essential. Powell cited NextEra Energy, Inc. (NEE) and Constellation Energy Corp. (CCEG) as examples.
Commodities and Materials: You need copper and wiring to physically connect the grid to data centers. Companies like Freeport-McMoRan, Inc. (FCX) and Southern Copper Corp. (SCCO) are critical suppliers of these materials.
Infrastructure Builders: The actual construction of data centers and their cooling systems requires specialized companies like Vertiv Holdings, LLC (VRT) and EMCOR Group Inc. (EME).
Why This Strategy Makes Sense
"The capex deluge continues. The money is very, very clear," Powell said during his presentation.
His point is that while it's hard to predict which hyperscaler will dominate AI, it's much easier to see that all of them need chips, power, copper, and data centers. The infrastructure companies get paid either way.
Powell believes investors can capture the upside of the AI revolution by focusing on "the traditional picks and shovels capex super boom, which still feels like it's got more to go."
In other words, forget trying to pick between Meta and Microsoft. Just sell them both the shovels.