Wall Street Eyes AI’s ‘Pick-and-Shovel’ Stocks for the Trade’s Next Move

The artificial intelligence investment theme continues to evolve, and investors looking for more sophisticated ways to capitalize on it are increasingly turning to technology “pick-and-shovel” stocks. Rather than focusing only on headline-grabbing AI platforms, many are targeting the companies that supply the infrastructure behind the boom, especially as major cloud providers commit billions of dollars to expanding their global data center footprints.

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Data storage firms emerged as clear winners within the S&P 500 in 2025. Sandisk Corp. led the index by a wide margin, with its shares surging nearly 580% to become the benchmark’s top performer for the year.

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Western Digital Corp. followed closely behind, ranking second, while Seagate Technology Holdings Plc placed fourth. Beyond storage, several companies tied to powering and connecting AI infrastructure such as Amphenol Corp., Corning Inc., NRG Energy Inc., and GE Vernova Inc. also landed among the index’s top 25 performers.

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That leadership marks a noticeable change from recent years, when Nvidia Corp. often viewed as the original AI “pick-and-shovel” stock sat comfortably near the top of the S&P 500. Nvidia gained a still-impressive 40% in 2025, but that performance placed it just 71st overall.

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While Nvidia and hyperscale cloud giants like Microsoft Corp., Meta Platforms Inc., and Alphabet Inc. continue to drive the market due to their massive size, their percentage gains have begun to cool.

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“When markets are heavily concentrated, it becomes critical to identify themes that can generate sustainable sales and earnings growth,” said Jake Seltz, portfolio manager at Allspring Global Investments. Artificial intelligence remains one of those dominant forces, he noted, but investors are increasingly looking beyond traditional tech leaders to capture the next phase of growth.

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That shift has encouraged investors to search for better valuations and new growth opportunities among companies positioned to benefit from the enormous capital spending directed toward data centers. “We’re focused on the picks and shovels tied to where the money is actually being deployed,” said Matt Sallee, a portfolio manager at Tortoise Capital Advisors, which does not own hyperscaler stocks. While chips still play a role, he said, much of the opportunity lies in lesser-known names that support the broader AI buildout.

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Still, some on Wall Street remain cautious. There is concern that spending could eventually slow, potentially reversing gains in AI-related stocks. Observers point to parallels with the pandemic, when demand for essential products surged rapidly before oversupply set in. “When Covid hit, the world suddenly needed massive amounts of face masks and hand sanitizer,” said Jed Ellerbroek, portfolio manager at Argent Capital Management. Within six to twelve months, however, excess capacity turned boom times into busts for many suppliers.

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Despite those risks, optimism around AI remains strong as cloud giants continue to reaffirm their long-term investment plans. Below are the key areas investors are targeting to gain exposure to the technology infrastructure expansion.

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Wall Street expects data storage demand to remain robust into 2026 following the explosive gains of Sandisk, Western Digital, and Seagate in 2025. That said, upside for this year’s biggest winners may be moderating. Analysts’ average 2026 price target for Sandisk is around $264, implying roughly 8% upside from its current level near $244.

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More substantial potential gains are seen elsewhere in the sector. Pure Storage Inc., for example, trades around $68 and carries a projected 2026 target near $94, representing an estimated 38% upside. Other AI-related storage plays include NetApp Inc. and Dell Technologies Inc.

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Stocks tied to building and energizing data centers are also expected to remain in focus. Quanta Services Inc., which provides specialized contracting services to utility and telecom clients, is a top pick for Tortoise Capital. Other companies in this category include MYR Group Inc., Primoris Services Corp., and MasTec Inc.

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Wiring and connectivity providers have also gained traction. Amphenol, known for its high-speed fiber and copper interconnect solutions, plays a critical role in data center construction. Emcor Group Inc. contributes through its mechanical and electrical construction services. Power-focused names drawing investor interest include Vistra Corp., Constellation Energy Corp., GE Vernova, and Generac Holdings Inc., a major supplier of backup generators.

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Bitcoin miners may represent what Sallee calls a “total revaluation story” as some pivot away from crypto mining toward powering data centers. “These companies already control significant electricity capacity,” he explained. “They’re redirecting that power into higher-value, long-term contracts tied to high-performance computing.”

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Firms making that transition include Bitdeer Technologies Group, which saw its shares jump in October after announcing expanded AI ambitions. IREN Ltd., Cipher Mining Inc., Riot Platforms Inc., and WhiteFiber Inc. have also benefited from plans to convert operations into high-performance computing data centers.

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Data centers require precise climate control, driving demand for advanced heating, ventilation, and air-conditioning systems. Vertiv Holdings Co., a supplier of power and cooling solutions, is up 46% in 2025 and remains closely watched. Eaton Corp. operates in a similar space, though it is considered less of a pure-play option.

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Additional beneficiaries include Comfort Systems USA Inc., which installs and maintains HVAC systems, along with water-focused companies such as Xylem Inc., Ecolab Inc., and American Water Works Co.

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Longer-term investors are also beginning to revisit software stocks as potential AI beneficiaries. As large language models improve and new applications emerge, software adoption could accelerate. “Investors are naturally drawn to companies with more attractive valuations and meaningful growth potential that stand to benefit from AI adoption,” said Melissa Otto of Visible Alpha.

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Software stocks lagged in 2025, with the S&P 500 Software Industry Index gaining 12% versus a 17% rise for the broader market. That underperformance, however, has made valuations more appealing. “These stories aren’t over,” said Allspring’s Seltz, citing Snowflake Inc., Datadog Inc., and ServiceNow Inc. “It may still be early, but the setups look compelling.”

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