There are signs that stock investors are becoming concerned about the soaring stock prices of artificial intelligence (AI) leaders and are turning their attention to some less prominent technology prosperity beneficiaries.

Since the release of ChatGPT by Nvidia at the end of 2022, the company's stock price has surged seven-fold, helping to drive a global rebound dominated by large-cap stocks. However, concerns about the sustainability of the rally, as well as geopolitical tensions and changes in global monetary policy, are pushing investors to look for new drivers.

Investors are selling off artificial intelligence giants and turning to small stocks and defensive stocks that have been lagging behind. This rotation comes as the artificial intelligence theme expands beyond chips and software into areas such as electrical utilities and land.

Gina Martin Adams, Chief Equity Strategist at Bloomberg Intelligence, recently said, "From a speculative standpoint, we're seeing some artificial intelligence-related trades pop up outside the technology and communication sectors," but they still dominate. The public utilities sector "has seen increased optimism in the second quarter, as people think AI will attract more investment and eventually lead to stronger growth."

Although technology and communication remain the two best-performing sectors in the MSCI Global Index this year, with gains of more than 14% each, they are the two worst-performing sectors so far this quarter. Since the end of June, the two sectors that have seen the biggest gains are real estate and utilities.

Here are the outlooks for various related industries:

Power Supply

The surge in demand for electricity from the technology sector has led to power shortages in many parts of the world. The International Energy Agency estimates that by 2026, electricity consumption by data centers, artificial intelligence and cryptos could double to more than 1,000 terawatt hours, roughly equivalent to Japan's electricity consumption.

This has drawn attention to utility companies around the world, from Dominion Resources (D.US) and Southern Company (SO.US) in the United States, to YTL Power International Bhd and Gulf Energy Development PCL in Southeast Asia.

Ivana Smit, Senior Investment Manager at Pictet Asset Management, said, "We believe that the widespread application of artificial intelligence may alter the game rules for the power generation industry. Depending on adoption rates, the scale of data center construction required for artificial intelligence by 2030 may be two to three times the current scale. "

Equipment

Ken Liu, utilities analyst at UBS Group China, said there is a severe shortage of transformers, devices that help deliver electricity from generators to users. If you order a transformer today, you'll be lucky to receive it by 2028.

This has boosted the stock prices of large transformer manufacturers this year, including GE Aerospace (GE.US), French Schneider Electric and Japan's Hitachi.

"Energy infrastructure will be a very big theme, and it existed even before the advent of artificial intelligence, and artificial intelligence will only increase demand for energy consumption," said Philipp Baertschi, chief investment officer at Bank J. Safra Sarasin AG. "There will be very good opportunities. But people need to know that these opportunities are highly cyclical and volatile."

Renewable Energy

The sharp increase in electricity consumption has also raised concerns about worsening pollution, prompting attention to renewable energy stocks. Companies involved in solar, hydro, wind and nuclear power are all considered potential beneficiaries.

Chris Liu, senior portfolio manager at Invesco, pointed out that in terms of the annual proportion of new alternative energy added to the national grid, China is in the lead. China's solar cell output accounts for 90% of the global total output, and while this industry may face tariff pressures from Europe and the United States, Chinese hydroelectric stocks such as China Yangtze Power (600900.SH) and Sichuan Chuantou Energy (600674.SH) may attract investors' attention.

From the perspective of AI, alternative energy stocks in other regions are also of great interest, including Vestas Wind Systems A/S, a Dutch wind turbine manufacturer, and Doosan Fuel Cell, a South Korean hydrogen-related company.

Copper

Even commodities are related to AI trading. Copper is a key material for cables and heat exchangers that help cool data centers. Related stocks include Freeport-McMoRan (FCX.US), BHP Group Ltd (BHP.US), and Jiangxi Copper (600362.SH).

Bloomberg Intelligence analyst Grant Sporre said:" By 2030, global copper consumption may increase by 2 million tons, with more than half of that coming from the United States, as power-hungry AI drives data center capacity growth. "

Data centers

Data centers use up the demand for land, which is used to house computing facilities near power sources and major AI clients. Leading REITS focused on this area include Equinix Inc (EQIX.US), Digital Realty Trust Inc (DLR.US), and Singapore's Keppel DC REIT. Boosted by AI, Australian real estate firm Goodman Group's stock rose about 35% this year.

Southeast Asia is seen as an emerging hotspot for AI, with local telecommunications companies such as Malaysia's Telekom and Thailand's Advanced Info Service PCL viewing data centers as a new growth engine. Philippine telecommunications company PLDT Inc. is seeking a valuation of over $1 billion for its data center portfolio as it considers a partial sale or a listing on a real estate investment trust (REIT).

End users

Some market strategists are focusing on companies that are likely to improve their business through AI and benefit from it.

Morgan Stanley estimates that the stocks of these "adopters" will rise an average of 27% this year as the resulting productivity gains help boost performance. Morgan Stanley believes that the industrial sector is one of the biggest beneficiaries.

Morgan Stanley's global research director Katy Huberty said:" If you look at the largest market cap companies, you'll find companies like Deere & Co. (DE.US) using information from agricultural equipment to optimize agriculture." She also highlighted Paccar Inc (PCAR.US), which designs and manufactures large commercial trucks.

The ability of AI to efficiently analyze large and complex data sets is also seen as a boon for the healthcare industry, particularly in helping to accelerate the drug development process. Scott Schoenhaus, healthcare technology analyst at KeyBanc Capital Markets, recommends that investors hold small biotech stocks including Recursion Pharmaceuticals (RXRX.US) and Schrodinger (SDGR.US).

Editor/Lambor