AI’s Buildout Is Lifting More Than Big Tech: 3 Stocks to Watch

AI Infrastructure Stocks: A Deep Dive into Picks & Shovels Plays

Key Concepts:

• Mag 7/Lag 7: Refers to the seven largest US technology stocks (originally the Mag 7 – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta – now some are underperforming, termed the “Lag 7”).
• AI Infrastructure: The underlying hardware, software, and physical resources (like data centers and power) required to support the development and deployment of Artificial Intelligence.
• Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-producing real estate.
• Dividend Yield: The annual dividend payment expressed as a percentage of the stock's price.
• Acre-Feet (of Water): A unit of volume used to measure water, equivalent to the volume of one acre covered to a depth of one foot.
• Utility: A company that provides essential services like electricity, natural gas, or water.

The Shifting Landscape of AI Investment

The discussion begins by acknowledging a recent shift in market leadership. While the “Mag 7” tech stocks previously dominated gains, many are now underperforming (“Lag 7”). This isn’t necessarily surprising given the substantial runs experienced by companies like Broadcom and Nvidia. The speaker suggests a rotation of capital is occurring, with investors seeking opportunities beyond the established AI giants. The focus is shifting towards companies that will benefit regardless of which AI player ultimately dominates – those providing essential infrastructure to all major players (Nvidia, Broadcom, Microsoft). The goal is to identify the “picks and shovels” of the AI gold rush. The current market is described as being in a “neutral zone,” with stocks at support levels; a breakdown could lead to further trouble, while holding steady suggests stability.

Prologis: The Data Center Landlord (PL)

The first highlighted stock is Prologis (PL), a Real Estate Investment Trust (REIT) specializing in warehouses and industrial facilities. Its key advantage lies in its extensive property portfolio – spanning the US and 19 countries, with significant holdings in Texas, a hotspot for AI infrastructure development. Prologis is positioned to become a primary landlord for data centers, offering a crucial resource: power. The company boasts 5.7 gigawatts of available power, enough to power 4.4 million homes.

Key Details:

• Business Model: REIT specializing in logistics real estate, now pivoting to data center infrastructure.
• Power Capacity: 5.7 GW (powers 4.4 million homes).
• Land Availability: 15,000 acres ready for data center development in Texas.
• 2023 Revenue Growth: 7% (prior to the full impact of the data center boom).
• Dividend Yield: 3%, with a 12-year history of annual increases, including a 6% raise in the past month.
• Revenue Impact: The speaker anticipates revenue boosts from AI infrastructure buildout this year due to the rapid pace of data center construction.
• Long-Term Potential: Data centers are expected to significantly impact Prologis’ growth, potentially increasing land value and rental rates.

Gladstone Land: The Water & Land Play (LAND)

Gladstone Land (LAND) presents a more unconventional approach to AI infrastructure investment. It’s a REIT focused on farmland, primarily in California and Arizona. The connection to AI lies in the increasing value of rural land in these states due to the demand for data center locations. Crucially, Gladstone Land possesses 55,000 acre-feet of water rights, a vital resource for cooling data centers in arid regions.

Key Details:

• Business Model: REIT owning farmland, benefiting from increased land values driven by data center demand.
• Water Rights: 55,000 acre-feet in California and Arizona.
• Dividend Yield: 5%, paid monthly.
• Revenue Considerations: Performance is tied to the agricultural sector; challenges in farming can negatively impact revenue.
• Recent Performance: Stock is up over 20% this year, potentially signaling a turnaround.
• Commodity Outlook: The speaker is bullish on agricultural commodities for 2026, potentially further benefiting Gladstone Land.

The discussion acknowledges that data center development is currently more concentrated in areas with cheaper land and electricity (like the Midwest), but emphasizes that California and Arizona are still viable markets, particularly given the water rights Gladstone Land controls.

Black Hills: The Utility Powering the Future (BKH)

Black Hills (BKH) is an electric and natural gas utility operating in South Dakota and Wyoming. Wyoming is emerging as a key location for data centers due to its cheap land and electricity. Black Hills already has contracts with Microsoft and Meta Platforms to provide power for a 115-acre data center campus in Cheyenne.

Key Details:

• Business Model: Regulated utility providing electricity and natural gas.
• Key Advantage: Located in Wyoming, a growing data center hub with low energy costs.
• Major Contracts: Supplies power to Microsoft and Meta data centers.
• Dividend Yield: 3.8%, with a 52-year history of annual dividend increases (since 1971).
• Growth Potential: AI-driven demand for electricity is expected to contribute to long-term growth, but as a utility, growth will likely be steady rather than explosive.
• Sector Trend: Utilities are currently performing well as investors seek more conservative investments.

The speaker notes that while Black Hills is a solid company, its AI impact may be slower to materialize compared to Prologis. However, the company’s long-term stability and consistent dividend growth make it an attractive option. The speaker also suggests that other smaller, niche utilities may present similar opportunities.

Conclusion:

The discussion highlights a strategic shift in AI investment, moving beyond the headline-grabbing tech giants to focus on the essential infrastructure supporting their growth. Prologis, Gladstone Land, and Black Hills represent unique “picks and shovels” plays, offering exposure to the AI boom through real estate, water rights, and utility services. The key takeaway is to identify companies positioned to benefit regardless of which AI technologies ultimately prevail, focusing on those providing fundamental resources like land, power, and water. The speaker emphasizes the importance of dividend-paying stocks and long-term stability in this evolving landscape.