The AI Trade’s Next Big Opportunity: Why “Pick-and-Shovel” Tech Stocks Are Taking Center Stage

Introduction

In 2025, many major cloud and technology companies — often called hyperscalers — poured billions into building out data center infrastructure, fueling growth across the tech sector. That massive capital spending has sparked a shift in investor strategy: rather than buying only the biggest AI-related names, many are now targeting the suppliers and infrastructure companies that benefit from this broader build-out. Discover Humanoid Robots: Why the Hype Outruns Reality — And What That Means for AI’s Future

This strategy is often described as a “pick-and-shovel” trade, named after the miners who made money selling tools during gold rushes rather than digging for gold themselves. In the context of modern technology, it means investing in companies that provide the essential components — like data storage, power infrastructure, cables, and other physical technology layers — which every AI-driven business relies upon.

In this article, we’ll explore:

• Why the AI trade is evolving

• What “pick-and-shovel” AI stocks really are

• Which sectors benefit most from AI infrastructure spending

• The risks and limits of this strategy

• What this trend tells us about the future of AI and tech markets

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What “Pick-and-Shovel” Stocks Are

Instead of focusing solely on companies that produce AI models or software platforms, this approach targets firms whose products are widely used across the AI ecosystem, regardless of who ultimately dominates the top layer of the market.

Data Storage Companies

In 2025, storage makers stood out in the market:

• Sandisk Corp. saw its stock surge nearly 580%, making it the best performer in the S&P 500 Index for the year.

• Western Digital Corp. and Seagate Technology Holdings Plc also ranked among the top performers.
  These gains reflect huge demand for storage capacity as data from AI workloads grows exponentially. 

Power and Infrastructure Providers

Companies involved in power systems, energy delivery, and physical connectivity also benefited from the AI build-out:

• Firms such as Amphenol Corp., Corning Inc., NRG Energy Inc., and GE Vernova Inc. appeared among the year’s top 25 performers in the S&P 500 — a sign that investors are rewarding businesses that supply the backbone of tech infrastructure. 

Chip Supply Chain Players

While Nvidia — long seen as the original “pick-and-shovel” stock in AI because of its GPUs — still performed well in 2025 (with share gains of around 40%), its relative performance was weaker compared with storage and infrastructure suppliers. Learn How Tech Employee Activism in 2025: Why Workers Are Fighting Back — and What It Means for the Future of Silicon Valley

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Why This Trend Is Gaining Traction Now

Several factors help explain why investors are broadening their focus:

1. Data Center Build-Outs Are Massive

Cloud service providers and tech giants are spending billions on new data centers and expansion projects. Those facilities need components — from storage to electronics to power systems — before they ever become operational, creating steady medium- to long-term demand for suppliers. 

2. Hyperscaler Growth Alone Isn’t Enough

Companies like Microsoft, Alphabet, and Meta are still central to the AI economy due to their sheer size. But their percentage gains in 2025 were smaller relative to many pick-and-shovel players, simply because they are so large. That’s why investors are looking for higher growth opportunities elsewhere. 

3. Better Valuations

Many pick-and-shovel companies trade at more traditional valuation multiples compared with megacap AI platform names. For investors seeking value with growth potential, these suppliers can be more attractive than the biggest tech stocks. 

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Examples of Pick-and-Shovel Plays

Here’s a more complete snapshot of the kinds of companies that fall into this category:

Data Storage Leaders

• Sandisk Corp. — Surged nearly 580% in 2025. 

• Western Digital Corp. — Among the year’s best performers. 

• Seagate Technology Plc — Also strong performer. 

Infrastructure and Power Suppliers

• Amphenol Corp. — Connectors and systems used in infrastructure. 

• Corning Inc. — Fiber optics and connectivity hardware. 

• NRG Energy Inc. — Power generation and energy services. 

• GE Vernova Inc. — Energy infrastructure and grid technologies. 

Chip Supply Chain and Production

In the broader ecosystem, other players — such as Taiwan Semiconductor (TSMC), Lam Research, and Micron Technology — are also often included in discussions about long-term AI infrastructure demand, thanks to their roles in producing advanced semiconductor components. 

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What Investors Should Know Before Jumping In

Long-Term Demand Is Infrastructure-Dependent

Companies building AI models ultimately depend on physical systems with long lead times — storage arrays, power distribution, chip fabrication, and cabling. That makes the demand for pick-and-shovel products more predictable once deployment plans are underway. 

Cyclical Risks Remain

Despite the momentum, analysts caution that if spending from hyperscalers slows — for example, due to economic downturns or shifts in corporate strategy — the gains seen in these stocks could reverse rapidly, much like other cycles where demand spikes and then normalizes. 

Diversification Helps

Rather than concentrating all capital in one type of tech company, many portfolio managers favor diversification across software, platforms, hardware, and infrastructure plays to capture both innovation and scaling demand.

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What This Trend Means for the Broader Market

The rise of pick-and-shovel stocks is a reminder that major technology waves — whether the internet, mobile computing, or semiconductor booms — eventually expand beyond headline names. The companies that supply the essentials often enjoy sustained demand, especially when capital expenditures are large and long-term.

In 2025, this theme translated into storage and infrastructure companies outperforming many traditional tech leaders, highlighting how the market is evolving. Investors looking beyond the big names are positioning themselves to benefit from the full lifecycle of technology adoption — not just the initial build or the final product.

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Conclusion

The next chapter of growth in technology markets is increasingly tied to the physical foundations on which modern computing runs. As cloud giants and hyperscalers pour capital into expanding data centers, power systems, and connectivity networks, the companies supplying that infrastructure have become central to the investment narrative. Explore How Trump’s 2025 Tech Agenda Reshaped Silicon Valley — and What It Means for AI, Innovation & Regulation

By focusing on these pick-and-shovel stocks, investors gain exposure to the backbone of long-term technological expansion — potentially capturing value overlooked by traditional tech momentum strategies.

Frequently Asked Questions

“Pick-and-shovel” stocks are companies that supply essential tools, infrastructure, or services (like data storage, power, cable, and components) that support AI rather than the AI products themselves. :contentReference[oaicite:0]{index=0}

With cloud giants spending billions on new AI data centers, investors see growth opportunities in companies that benefit from that spending, often with better valuations than hyperscalers. :contentReference[oaicite:1]{index=1}

Examples include data storage makers (like Sandisk, Western Digital, Seagate), power and fiber suppliers, and other firms that build or fuel data center infrastructure. :contentReference[oaicite:2]{index=2}

Nvidia still powers much of the AI boom but saw smaller relative gains in 2025 compared with earlier years, leading some investors to broaden beyond mega-cap AI hardware. :contentReference[oaicite:3]{index=3}

No — if hyperscaler spending slows or AI buildouts slow down, related stocks could underperform, similar to supply-chain stocks in other tech cycles. :contentReference[oaicite:4]{index=4}