Industrial Stocks Ride AI Infrastructure Wave to Gains

The tech industry's heavy investment in artificial intelligence (AI) has sparked a trend of increasing capital expenditures (capex), putting pressure on big tech companies to show results. Alphabet, Amazon, and Meta Platforms have all raised their capex forecasts, with Alphabet now expecting $200 billion in spending and Amazon jumping from $200 billion to $220 billion. However, investors are punishing companies that spend without showing returns.

Industrial stocks such as Caterpillar (CAT), Eaton (ETN), and Vertiv Holdings (VRT) may provide a safer bet for investors. These companies benefit from the infrastructure demands created by AI without being directly involved in its development or application.

Caterpillar, for example, is gaining attention as a key AI infrastructure stock due to its production of fast-response natural gas generators capable of providing continuous power to data centers. Its revenue rose 24% in the second quarter, with the power generation segment increasing by 72%. The company's stock has surged 91% over the past year.

Eaton develops energy-efficient products for managing electrical, hydraulic, and mechanical power, which are essential for data centers. It reports that AI clusters now consume up to 500 megawatts of power, a significant increase from just a few years ago. Eaton's revenue rose 21% in the second quarter, with net income increasing by 53%. Its stock has risen over 13% over the past year.

Vertiv plays a critical role in AI architecture by providing power and cooling hardware for data centers and communication networks. The company's infrastructure solutions are designed specifically for Nvidia's Vera Rubin AI factory designs, and its revenue rose 24% in the second quarter.