Artificial intelligence remains one of the most important investment themes in the market today. While much of the attention is focused on new tools and applications, the bigger story may be the infrastructure being built behind the scenes. The largest technology companies are committing significant capital to the data centers, advanced chips, power capacity, and networks required to support future AI demand.
A Large and Growing Commitment
By 2027, spending by the major cloud and AI companies could reach $1.25 trillion. Forecasts will continue to change, but the direction is clear: companies such as Microsoft, Amazon, Alphabet, Meta, Oracle, and CoreWeave are investing aggressively because they expect AI demand to remain strong for years to come.
Why the Buildout Matters
AI requires far more computing power than traditional software. As businesses use AI to improve service, automate tasks, analyze data, and increase productivity, the companies providing these tools need more capacity. Put simply, the AI economy needs a larger foundation before it can continue to scale.
· Adoption is becoming more practical: Businesses are moving from experimentation toward real operating use cases.
· Capacity remains constrained: High-end chips, data center space, and reliable power access are still difficult to secure.
· Long-term demand is visible: Large customers are making commitments for future cloud and AI capacity.
· Competition is intense: The largest technology platforms want to ensure they can support customers as AI adoption broadens.
Risks We Are Watching
Large investment cycles always come with risk. Data centers require electricity, cooling, land, permits, and ongoing maintenance. Investors will also want to see that today’s spending eventually translates into durable revenue and profit growth. If AI demand disappoints, some investments may prove excessive. If demand continues to accelerate, the industry may still face bottlenecks in power, construction, and supply chains.
Our View for Clients
We believe AI remains a meaningful long-term theme, but it should be approached with discipline. Not every company connected to AI will create lasting shareholder value. Our preference is to focus on businesses with strong balance sheets, durable competitive advantages, and a reasonable path to turning AI demand into profitable growth.
Bottom Line
Recent volatility in AI-related stocks may create selective opportunities, but valuation and business quality still matter. We have taken profits in certain positions, including Powell Industries, Vertiv Holdings, and Advanced Micro Devices, while continuing to see long-term opportunity in high-quality AI hyperscalers and infrastructure companies. Our focus remains on owning strong businesses at reasonable prices, not chasing every AI headline.
The bottom line: AI is likely to remain a major investment theme through 2027 and beyond. We believe the opportunity is real, but the risks should not be ignored. A thoughtful approach—focused on quality, valuation, and long-term fundamentals—offers the best way to participate in AI’s growth while maintaining proper risk management.