Every Hyperscaler Raised Capex Again. These 3 Boring Industrials Get Paid No Matter Who Wins the AI Race.
Key Points
Caterpillar provides much more than heavy equipment.
Eaton says the power demand of AI clusters has increased 100-fold in just a few years.
Vertiv makes power and cooling hardware needed by data centers and communication networks.
- 10 stocks we like better than Caterpillar ›
There's a lot of pressure on big tech stocks, particularly as they continue to ramp up capital expenditures (capex) to build data centers and acquire networking equipment and processors to run generative and agentic AI programs. Alphabet raised its capex forecast from $185 billion to $200 billion; Amazon jumped from $200 billion to $220 billion; and Meta Platforms is issuing new debt to fund its AI ambitions.
Investors have taken to punishing big tech companies that are spending money without showing results -- I call it the "show me" phase of AI. And although it may be difficult for investors to pick and choose which tech company will delight and which will disappoint in the next earnings report, a safer bet may be to invest in the industrial companies that are putting in the dirty work to make AI function.
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Caterpillar (NYSE: CAT), Eaton (NYSE: ETN), and Vertiv Holdings (NYSE: VRT) are three such industrial stocks that fit the bill.
Image source: Getty Images.
No. 1: Caterpillar
Caterpillar is probably best known as a manufacturer of construction and heavy machinery. Its yellow tractors, excavators, and graders are commonly seen in construction sites and have been immortalized in toy form for millions of kids.
However, the company is also gaining significant attention as a key AI infrastructure stock since it makes fast-response natural gas generators capable of providing continuous power to data centers.
Caterpillar reported second-quarter revenue of $20.5 billion, up 24% from a year ago, and earnings per share of $7.77 versus $4.62 per share a year ago. Revenue for the company's power generation segment rose 72%, which management attributed to strong demand for equipment used in data center applications. The stock is up 91% during the past 12 months.
No. 2: Eaton
Eaton develops energy-efficient products to manage electrical, hydraulic, and mechanical power. It sells power distribution systems, circuit protection, and related equipment -- all items that data centers require to manage power needs.
And that's becoming increasingly important as data centers not only grow but also require greater power. Eaton says that AI clusters just a few years ago consumed about 5 megawatts (MW) of power, but today's data centers can exceed 500 MW, which it says is the equivalent of powering a small city.
The company provides engineering and advanced software to protect and optimize power loads to chips. It recorded second-quarter revenue of $8.53 billion, up from $7.02 billion a year ago. The stock is up more than 13% during the past year.
No. 3: Vertiv
Vertiv plays a key role in AI architecture as well. The company makes power and cooling hardware that data centers and communication networks need to make sure power remains flowing and AI chips don't overheat.
The company's infrastructure solutions are designed specifically for Nvidia's Vera Rubin AI factory designs. Vertiv's custom product provides the hardware and lifecycle services needed for power, cooling, and controls for the Vera Rubin architecture.
Revenue in the second quarter rose 24% from a year earlier to $3.27 billion, with net income of $497.9 million, up from $324.2 million a year ago. Vertiv stock is up more than 115% during the past year.
Industrial stocks may be boring, but these are solid AI picks
Investors don't need to correctly predict which big tech company will see the biggest payoff from AI spending -- companies that are winners in this quarter may be trailing the pack a year from now. By investing in companies that benefit from that spending regardless of which AI platform comes out on top, you can hedge your bets.
Caterpillar, Eaton, and Vertiv are all positioned to benefit from the infrastructure demands created by AI. As hyperscalers continue to spend hundreds of billions on it, these three industrial stocks will be among the less obvious winners of the AI expansion.
Should you buy stock in Caterpillar right now?
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Patrick Sanders has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Caterpillar, Eaton Plc, Meta Platforms, Nvidia, and Vertiv. The Motley Fool has a disclosure policy.
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