BlackRock bets on ‘pick and shovel’ trade, singling out clear winners in AI spending spree

As investments in artificial intelligence infrastructure continue to surge, Ben Powell, BlackRock's chief investment strategist for the Asia-Pacific region, emphasizes the importance of suppliers in the AI ecosystem. According to Powell, companies involved in producing essential components—ranging from chip manufacturers to energy suppliers and copper-wire producers—are poised to be the primary beneficiaries of this ongoing capital influx. During an interview with CNBC at Abu Dhabi Finance Week, Powell pointed out that the race among tech giants to dominate the AI landscape is driving unprecedented capital expenditures. "The capex deluge continues. The money is very, very clear," he stated, highlighting the potential for further growth in what he describes as a "traditional picks and shovels capex super boom." This year's significant investments in AI infrastructure have not only propelled the market but have also ignited discussions about the sustainability of this boom. Notably, Nvidia, a leader in GPU technology critical for AI applications, recently became the first company to surpass a market capitalization of $5 trillion, sparking speculation about an AI bubble. Additionally, Microsoft and OpenAI reached a restructuring agreement to bolster fundraising for OpenAI, which is reportedly gearing up for an IPO that could value it at $1 trillion. The rapid expansion of data centers is creating long-term procurement strategies across the tech industry, with companies like Amazon and Meta allocating billions annually for AI advancements. S&P Global projects that data center power demands could nearly double by 2030, predominantly driven by hyperscale and enterprise facilities as well as crypto-mining operations. Powell also indicated that major tech firms have only begun to explore capital markets for funding their AI initiatives, suggesting that more investment is forthcoming. "The big companies have only just started dipping their toes into the credit markets… feels like there's a lot more they can do there," he remarked. He observed that hyperscalers are pushing their spending aggressively, driven by the fear of falling behind in a fiercely competitive market. Most of the capital influx is expected to benefit companies involved in the AI infrastructure rather than those developing AI models, reinforcing a prevailing belief among investors that the most substantial gains from the AI boom may stem from the hardware, energy, and infrastructure sectors that support the technology. "If we're the recipients of that cash flow, I guess that's a pretty good place to be, whether you're making chips, whether you're making energy all the way down to the copper wiring," Powell concluded, forecasting positive developments for these stocks in the coming year.