Is This the Most Overlooked Way to Profit From AI Infrastructure Spending?

As of the time of this writing, shares of Nvidia have risen 28,000% over the past decade. The reason for that is that the company's high-powered computer chips power artificial intelligence (AI). But there's so much more to AI than just chips. Here are some other ways to play the technology and one that will likely end up a winner even if the AI building boom slows down.

Artificial intelligence is exciting, but it still has to live somewhere

Like the internet, artificial intelligence is a somewhat nebulous thing. You use it on a computer but it doesn't actually live on your computer. However, it does live on a computer somewhere. And the computers have to be extremely powerful. That's why demand for Nvidia's chips is so high: It makes the brains of super powerful computers capable of running AI.

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That 28,000% price spike over the past decade has come along with very good news on the company's income statement. Revenue has increased 3,200% over the same time span, with earnings up 12,100%. No wonder investors are so excited about Nvidia's stock. But it isn't the only way to invest in AI infrastructure spending.

For example, the computers that support AI are often housed in a data center. That's a big, specially designed building. Real estate investment trusts (REITs) like Digital Realty (NYSE: DLR) own such properties. Digital Realty's portfolio includes over 300 data centers located across the Americas, Europe, Asia, Africa, and the Middle East.

That said, data centers need to be built. That's where a company like U.S. steel giant Nucor (NYSE: NUE) comes in. This Dividend King has long focused on providing specialty steel products in addition to the commodity steel it produces. Those specialty parts include building components, with a recent investment in a company that makes the racks that hold computers in data centers.

But the most interesting AI infrastructure opportunity of all may come from pushing even further back in the supply chain. Since AI is basically just a fancy computer program, it needs power to operate. That means increased demand for electricity. Unlike chips, buildings, and building components, however, demand for electricity won't likely decline if the AI building spree comes to an end. It is more likely that demand growth will just slow a bit. That's because the AI infrastructure that gets built will still be there sucking in electricity.

Utilities: The most overlooked AI infrastructure opportunity

Because it is so capital-intensive to build utility infrastructure, utility stocks are basically regional in nature. Often they are granted monopolies in the regions they serve, though that leaves them subject to strict government regulation. One option for investors looking to invest in utilities is to try to cherry-pick the stocks that look the most attractive. That's a lot of work and will expose you to the idiosyncratic risk of each company in which you invest. A better option for most will be to buy an exchange-traded fund (ETF) that invests in a basket of utilities.

Vanguard Utilities ETF (NYSEMKT: VPU) is a good choice. It tracks the MSCI US Investable Market Utilities 25/50 Index. Don't get hung up on the 25/50 in the name, it is just a statement of the diversification rules used to create the index. No single stock can make up more than 25% of assets and all of the stocks in the portfolio that account for 5% or more of assets can, as a group, add up to no more than 50% of total assets. Vanguard Utilities ETF is specifically designed to be diversified, which is a good thing and not really all that complicated a concept to understand.

The ETF's expense ratio is a fairly low 0.09%. The dividend yield is 2.6%, which is well above the market's tiny 1.2% yield. The portfolio includes 69 utilities, more than enough to get you exposure to the AI demand growth that is taking place. Vanguard Utilities ETF is a way for more conservative investors and income lovers to play the AI boom, noting that the biggest drawback is its focus on U.S. utilities. But there's still plenty of opportunity to benefit from AI in the United States, which tends to be one of the most innovative countries in the world.

Think simple when it comes to AI

When investors think about AI, most are envisioning a high-tech wonder world. That's fine and there's probably a lot of opportunity in that dream. But that dream doesn't exist without electricity. If you want to invest in the AI infrastructure boom, you might be best off keeping things simple and buying a utility-focused ETF like Vanguard Utilities ETF.

Reuben Gregg Brewer has positions in Nucor. The Motley Fool has positions in and recommends Digital Realty Trust and Nvidia. The Motley Fool has a disclosure policy.