The AI Trade Is Rotating From Chips to Infrastructure. 2 Stocks Riding the Shift.

For two years, the easiest way to invest in artificial intelligence (AI) was to buy the chipmakers. Lately, however, some of that money has started to move.

As some investors look past chip winners like Nvidia and the memory names, attention is shifting to a less glamorous corner of the boom: the companies that supply the power and cooling that AI data centers can't run without.

The logic is simple. Every new AI cluster needs enormous amounts of electricity and a way to keep thousands of chips from overheating. That demand flows to a different set of suppliers than the ones making the processors.

Two names sit near the center of that shift. Vertiv Holdings (NYSE: VRT) makes data-center power and cooling gear, and Bloom Energy (NYSE: BE) builds on-site fuel cells that generate electricity where the grid can't keep up. Here's what each one has going for it, and what could trip it up.

Image source: Getty Images.

1. Vertiv: the power and cooling backbone

Vertiv sells the hardware buried inside a data center: power distribution, backup systems, and the liquid cooling that dense AI racks increasingly demand. When a hyperscaler builds new cloud computing capacity, Vertiv's equipment often goes in.

Demand is strong. First-quarter revenue rose 30% year over year to $2.65 billion, with organic sales up 23% and the Americas region growing 44% on data-center strength.

And profits are soaring. Adjusted earnings per share jumped 83% to $1.17, and adjusted operating margin expanded more than four percentage points to about 21%.

Looking ahead, Vertiv's backlog more than doubled last year to $15 billion, roughly a year to 18 months of revenue booked in advance, and management raised its full-year outlook to about $13.75 billion in sales.

But one reason to tread carefully is valuation. At about $319 as of this writing, up about 97% this year, Vertiv trades around 50 times forward earnings. That's a rich multiple that assumes the build-out keeps compounding. And a stock priced this way has a long way to fall if AI spending slows.

2. Bloom Energy: power when the grid can't keep up

Bloom's pitch is different. Its fuel cells generate electricity on-site, which matters because the grid in many regions simply can't deliver power fast enough for a new AI campus. Rather than wait years for a utility connection, a developer can install Bloom's systems and start running.

That need is translating into explosive growth. First-quarter revenue jumped 130% year over year to $751 million, and the company swung to a profit of about $71 million from a loss a year earlier. Operating cash flow turned positive, too.

The catalysts carry big names. Bloom recently expanded a master agreement with Oracle to supply up to 2.8 gigawatts of fuel cells, with an initial 1.2 gigawatts contracted and deployment underway. And it also scaled an AI-focused power financing partnership with Brookfield Asset Management to $25 billion. Additionally, back in April, management raised full-year revenue guidance to as much as $3.8 billion.

But Bloom is the more speculative of the two. The stock is up more than 180% this year and more than 800% over the past 12 months, and at about $245 it trades at well over 100 times expected earnings.

So which is the better bet?

The rotation itself makes sense to me. Powering and cooling AI is a durable, physical need -- and it's less crowded than the chip trade, which arguably leaves it more room to run.

But less crowded doesn't mean cheap.

Both stocks already price in years of strong growth. What gives me pause is how much investors are paying for these growth stories.

Between the two, I lean toward Vertiv as the steadier way to play the theme. It's profitable, spread across thousands of customers, and its backlog offers real visibility, even at a demanding price. But even it may be overpriced.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Bloom Energy, Brookfield Asset Management, Nvidia, Oracle, and Vertiv. The Motley Fool has a disclosure policy.