As the fever pitch around artificial intelligence starts to cool, a growing cadre of investors are pivoting towards the underlying infrastructure and energy grids essential for powering AI technology. This shift echoes the historical “picks and shovels” strategy, where the steady business of equipping prospectors proved more lucrative than the hit-or-miss nature of gold mining itself. This approach could reshape the investment landscape and secure steady returns amidst the volatility of AI stocks.
The AI gold rush has seen dramatic surges and abrupt corrections. Nvidia Corp., a standout beneficiary, witnessed its stock price skyrocket only to plummet by 17% in a single day following the emergence of Chinese rival DeepSeek. This volatility underscores the risks associated with betting solely on high-flying AI mega caps. Investors are now reassessing their strategies, looking towards the broader AI ecosystem for more stable opportunities.
Alexander Smahtin, portfolio manager at Global X Investments Canada Inc., highlights the defensive nature of infrastructure investments. “By investing in infrastructure, you’re ultimately gaining exposure to a different portion of the AI value chain – the input – without necessarily increasing your exposure to the output,” he notes. This strategy allows investors to tap into the AI boom while mitigating the risks associated with the sector’s fluctuating fortunes.
The Global X Artificial Intelligence Infrastructure Index ETF, launched last month, embodies this approach. The fund provides exposure to 30 companies integral to the AI ecosystem, including those involved in commodities like copper and uranium, critical for electrical generation and transfer. Cameco Corp., a major uranium miner, and multinationals like Eaton Corp. and Schneider Electric, manufacturers of electrical equipment, are among the key players.
Nick Mersch, associate portfolio manager at Purpose Investments Inc., emphasizes the unprecedented capital spending cycle driven by tech companies racing to build data centres. “New reasoning models can easily use more than 100 times the computing resources as the first wave of AI applications. The result is 100 times more electricity required,” he says. This surge in demand presents opportunities for companies involved in data centre construction and management, such as Arista Networks Inc. and Super Micro Computer Inc.
However, the AI boom is not without its skeptics. Brian Madden, chief investment officer at First Avenue Investment Counsel, expresses cautious optimism. “While we believe the leading hyper-scalers may, over time, recoup their massive investments in AI computing and earn attractive returns for their shareholders, the near-term opportunity to invest in companies upstream of them is immediately compelling,” he notes. First Avenue has invested in companies like Vistra Corp., which operates a fleet of power generation assets, and Cameco, recognizing their strategic positioning in the AI supply chain.
This shift towards infrastructure and energy investments could significantly influence market dynamics. As more investors adopt this strategy, we could see a redistribution of capital away from AI mega caps towards the underlying ecosystem. This could stabilize the AI sector, fostering a more sustainable growth trajectory. Additionally, it could drive innovation in energy generation and distribution, as companies seek to meet the escalating demands of AI technology.
Moreover, this trend could spark a broader debate about the environmental implications of AI. As the technology’s energy requirements surge, so too does its carbon footprint. Investors and policymakers alike may need to grapple with the environmental costs of AI, potentially driving demand for cleaner energy solutions.
The pivot towards AI infrastructure and energy investments is more than just a defensive play. It’s a recognition of the interconnected ecosystem underpinning AI technology and a bet on the long-term growth prospects of the sector. As this trend gains traction, it could reshape the investment landscape, driving innovation and sparking crucial debates about the environmental impact of AI. Investors would do well to watch this space closely, as the ripples of this shift could be felt throughout the market.
