Picks and Shovels Are Leading the AI Boom

Mr. Market is confused.

Investors fear artificial intelligence will disrupt everything. At the same time, they are pouring massive amounts of money into the infrastructure that powers AI.

The AI trade has not died. It has narrowed.

The Nasdaq is down about 3% this year, and the S&P 500 is off roughly 1%, both dragged lower by a handful of mega-cap technology stocks. Look beneath the surface, and the picture changes. 

The S&P 500 Equal Weight Index is up 6%. Strip out the dominance of the largest names, and the average stock in America is moving higher. The generals are stalled. The troops are advancing.

Meanwhile, the largest technology companies are projected to spend roughly $715 billion on capital expenditures this year, about 60% more than last year, according to Wall Street consensus cited by The Wall Street Journal. 

Microsoft, Amazon, Alphabet, Meta Platforms, and Oracle are racing to build data centers, secure advanced chips, and develop frontier AI models. Investors have punished many of these same companies for that spending.

That is short-term thinking.

When railroads were built, fortunes were made by the companies selling steel and equipment. During the oil boom, refiners and drill tool suppliers prospered. In the Gold Rush, Levi Strauss sold denim, and Samuel Brannan sold supplies while miners came and went.

AI is no different. The immediate winners are the picks and shovels. Chipmakers such as Nvidia, Broadcom, and Advanced Micro Devices sit at the center of the buildout. Their processors are the brains inside AI systems.

Yet even within semiconductors, leadership is shifting. The strongest surge has come from memory.

DRAM and NAND flash memory are essential for AI data centers. AI workloads require enormous data throughput. They consume far more memory per server than traditional computing. 

According to Counterpoint Research, memory prices have jumped between 80% and 90% in the first quarter due to tight supply and surging demand. That is not theory. That is pricing power.

Over the past six months, two companies at the heart of memory fabrication have delivered extraordinary gains. Both are holdings in the American Prosperity portfolio. 

Applied Materials has climbed nearly 120%. Lam Research has surged roughly 140%. 

These companies do not design apps. They sell the deposition, etch, and inspection tools required to manufacture advanced memory chips. As DRAM and NAND production ramps up, chipmakers must expand fabrication lines and increase process complexity. 

Every additional wafer processed requires more equipment. Capital spending flows directly to the suppliers. Those are supply chain realities, not speculative narratives.

While Wall Street debates whether AI coding assistants from companies such as Anthropic will make enterprise software obsolete, the physical infrastructure keeps expanding. Data centers are being constructed. Servers are being filled. Power demand is rising. Memory must be purchased before a single line of AI-generated code is written. That is where the money is flowing.

Meanwhile, enterprise software stocks have been hit hard. Salesforce, GoDaddy, ServiceNow, and Adobe are being treated as if extinction is inevitable. That assumption ignores complexity.

Enterprise systems run payroll, compliance, accounting, security, and logistics for global organizations. These platforms are deeply embedded. Replacing them is not as simple as prompting a chatbot.

Even Nvidia CEO Jensen Huang recently described the idea that AI will kill software as the most illogical thing in the world. The market hears fear louder than logic. That creates opportunity.

In every major technological shift, capital flows first to infrastructure. Over time, durable business models reassert themselves. The internet reshaped commerce. Cloud computing altered distribution economics. Neither eliminated the need for strong businesses.

AI will follow the same path.

From a momentum standpoint, this rotation makes sense. Relative strength is concentrated in the suppliers to the buildout. That is measurable. That is observable. That is tradable.

At the same time, markets overshoot. When sentiment assumes permanent margin collapse in software, prices often move further than fundamentals justify. The lesson is straightforward. Follow the money.

When $715 billion of projected capital spending is being deployed by the largest technology companies in the world, someone is getting paid. Chips. Memory. Fabrication equipment. Cooling systems. Power infrastructure.

Speculation focuses on which AI model will dominate. Investing focuses on who profits regardless of which model wins. Picks and shovels still rule.

Until capital spending slows, the infrastructure trade remains intact. Leadership will rotate eventually. It always does. Our job is not to predict headlines. Our job is to track momentum and capital flows.

Right now, capital is flowing into the backbone of AI. That is not emotion. That is evidence.

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Regards,

Charles Mizrahi
Prosperity Insider