What is xAI and why is it important to these stocks?

xAI is Elon Musk's artificial intelligence company that's receiving billions in funding from his other companies like SpaceX and potentially Tesla. This massive investment is significant because it requires enormous computing infrastructure - from chips and servers to data centers and networking equipment. The companies in this stock group provide these essential components, meaning they stand to benefit directly from xAI's spending and the broader AI arms race it's accelerating.

What are "picks-and-shovels" companies in AI?

"Picks-and-shovels" refers to the essential tools and infrastructure providers that support an industry, inspired by the gold rush where the most reliable profits went to those selling mining equipment. In the AI context, these are the companies providing the critical hardware components (like GPUs, servers, and networking equipment) and infrastructure (like specialized data centers) needed to build and run AI systems. Rather than betting on which AI model will win, this approach invests in the companies that supply necessary technology to all AI developers.

How do these stocks benefit from AI development?

These companies benefit from AI development through increased demand for their products and services. Training large AI models requires enormous computing power, which translates to purchases of high-performance semiconductors (like those from NVIDIA), specialized servers, vast data center capacity, and complex networking equipment. As companies like xAI receive billions in funding to build AI systems, they must spend much of that money on this physical infrastructure, directly boosting revenues for the providers in this stock group.

What is a data center REIT and why is it included?

A data center REIT (Real Estate Investment Trust) is a company that owns, operates, and develops facilities specifically designed to house servers and networking equipment. Companies like Equinix (EQIX) in this group are included because AI development requires massive physical infrastructure. As xAI and competitors build out their computing capacity, they need specialized facilities with proper cooling, power distribution, and security. Data center REITs provide this critical real estate infrastructure, making them essential parts of the AI supply chain that benefit from increased spending in the sector.

What are the risks of investing in these AI infrastructure stocks?

While these stocks may benefit from increased AI investment, they face several risks. Technology shifts could make current hardware obsolete. Competition is intense, and companies might lose market share. AI spending could slow if the technology doesn't deliver expected returns. Many of these stocks have already seen significant price increases in anticipation of AI growth, potentially limiting future returns. Additionally, some smaller companies in this group may have less financial stability than established players, making them more vulnerable to market downturns or delayed orders from major customers.

15 handpicked stocks

Musk's AI Gambit

This carefully selected group of stocks represents companies that provide the essential hardware and infrastructure powering AI development. As Elon Musk funnels billions into xAI, these "picks-and-shovels" businesses are positioned to benefit from the resulting demand shock across the tech sector.

Han Tan | Market Analyst

Updated 2 days ago | Published at juillet 14