The Next Big Winners in AI May Not Be the Companies You Think
For nearly four years, the biggest beneficiaries of the AI investment boom have been the companies supplying the infrastructure necessary to develop and operate those increasingly powerful AI models. Companies like Nvidia, Broadcom, and other semiconductor manufacturers have benefited from seemingly endless spending on graphics processing units (GPUs), networking equipment, gas turbines, and anything else needed to build and outfit a datacenter.
Up to this point, investors have rewarded these companies because they are selling the essential building blocks of the AI revolution. But as AI moves beyond novelty and experimentation and into widespread deployment, investors must also shift their focus to the companies that can use the technology to reduce operating expenses, increase employee productivity, expand profit margins, or generate entirely new revenue streams.
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Before businesses can deploy AI at scale, the infrastructure must exist to support it. That has meant enormous capital expenditures by companies like Microsoft, Amazon, Alphabet, and Meta as they expand their data center capacity and acquire the equipment necessary to meet the anticipated demand.
But many of the companies that initially helped to enable the AI revolution may not necessarily be the ones that ultimately capture the greatest economic benefits from it. In fact, some of the most attractive investment opportunities could emerge among established businesses that have received relatively little attention throughout the AI boom thus far.
During the infrastructure phase, investors have largely rewarded companies based on the amount of money spent developing the technology. However, the economics of building AI infrastructure are far different from the economics of actually using it. And not only are we already beginning to see evidence of that transition, we have seen a version of this phenomenon play out before.
When the term “cloud computing” started to gain traction in the early 2000s, much of the excitement centered around the companies helping larger enterprises moved away from storing their critical data on physical servers and toward accessing it over the internet. At that time, traditional enterprise technology companies, server manufacturers, and web hosting providers were widely considered to be best positioned to benefit from the transition.
For several years, many of these cloud infrastructure companies were treated as natural long-term beneficiaries of a technological shift that was expected to transform corporate computing. But as the industry matured, the competitive landscape changed, and so did the tech-heavy Nasdaq’s key contributors.
Rather than the cloud computing market remaining fragmented among dozens of specialized providers, much of the infrastructure business ultimately consolidated around a handful of enormously powerful platforms, such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud—which currently represent approximately 60% of the global cloud services market collectively.
One of the more overlooked aspects of the AI investment boom is that not every company positioned to benefit most from it actually operates in the technology sector. In fact, some of the businesses with the greatest potential to improve profitability through AI may be those that have traditionally shown relatively modest revenue growth, steady cash flows, and predictable operating margins. This includes large banks, insurance companies, healthcare providers, and industrial manufacturers.
Whether it is a high-growth software company or an old, stodgy logistics company, investors tend to place significant value on companies capable of consistently expanding earnings faster than their revenues. Thus, if an older, established business can begin delivering outsized earnings growth through AI-driven efficiencies, the market may eventually reconsider how much it is willing to pay for those future profits.
For investors, this creates the possibility of a particularly attractive combination between faster earnings growth and a higher valuation multiple. But not every company adopting AI will see those benefits. In commoditized industries where price, for example, is the only differentiator, AI may simply become another cost of doing business rather than a lasting competitive advantage.
This is why investors should begin distinguishing between companies merely adopting AI and those successfully leveraging it. Companies announcing new initiatives is far different from demonstrating measurable improvements in operating margins, free cash flow, and profitability. But for businesses whose current valuations do not already reflect expectations of substantial AI-driven earnings growth, successfully making that transition could create meaningful upside for investors.
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Malcolm Ethridge is the Managing Partner at Capital Area Planning Group, based in Washington, D.C. His areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits.
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