Nicholas V. Beare
During 19th century gold rushes, few prospectors struck it rich, but merchants made real fortunes by selling essential tools for the job—giving rise to the term “pick and shovel businesses.”
Fast-forward, while today’s news headlines heralding the rise of artificial intelligence (AI) focus on chip innovation or software advances, an equally significant story unfolds in the background—massive infrastructure development that enables this technological revolution to even happen.
According to McKinsey research, a staggering $5.2 trillion in data center capacity expansion is required by 2030 to handle AI processing loads, far outstripping the additional $1.5 trillion needed for traditional IT applications.
While it may be too soon to pick long-term winners in the AI gold rush now, an immense investment opportunity lies with the modern ‘pick and shovel’ companies—design firms, contractors and others responsible for creating and powering the vast data centers that underpin AI and make up a group that is steady, essential and often overlooked.
Construction sector firms are 21st century ‘pick and shovel’ companies in AI, providing essential services for that sector’s growth Credit: Getty Images/Rawf8
Complex requirements
Data center construction is not new, but facilities now driven by the scope of AI demands are on an entirely different scale. These are often multiple times larger than legacy sites and consume exponentially more energy—in some cases enough to match the needs of a small city. The scale and technical sophistication of data centers now and the speed at which developers and users want them built is creating demand for companies that train and employ skilled engineers, craft workers. technologists and managers who understand and can execute complex requirements of these projects.
Cooling is a particularly critical challenge. AI processors generate immense heat, prompting the industry to move beyond traditional air cooling and toward liquid and immersion systems. Firms with expertise in providing these advanced solutions are seeing demand accelerate as new data centers come online.
Hyperscalers also seek experts who can find large enough sites to accommodate these facilities, along with access to affordable and abundant power and water supply. This has reshaped the geographic landscape and need for local construction resources and expertise. While Virginia was an early hub for data center development, the buildout has shifted to Southeast and Midwest states such as Texas, Georgia, Louisiana, Ohio and the Dakotas where project siting and permitting have fewer potential hurdles.
Tapping into the tailwind
Technology cycles can be volatile, and AI has experienced bouts of exuberance and uncertainty. But data centers’ significant need for up-front investment, land acquisition, long lead time equipment orders and multiple approvals have created a multi-year backlog of demand—which insulates contractors and suppliers from any short-term swings in sentiment.
This reality has not gone unnoticed by strategic and financial buyers who are increasingly drawn to construction sector firms with significant data center exposure. Stephens recently worked on the sale of a multi-generation, family-owned mechanical contractor. Before the current AI phenomenon, potential acquirers may have viewed the company’s exposure to new construction as a risk. But seeing a meaningful portion of its pipeline in data center work, private equity pounced with bids to purchase the company at a premium multiple to capitalize on this durable, multi-year tailwind.
Public markets are also rewarding firms making the pivot. One civil contractor also recognized the opportunity and acquired a private electrical contractor specializing in semiconductor and data center work. The buyer’s repositioning to gain exposure to one of the fastest-growing construction markets has been a driver of its share-price boom in recent years.
No one knows precisely how the AI ecosystem will evolve over the next decade. There will be winners, losers and inevitable hype cycles. But if the infrastructure to support this transformation is to be built, construction services businesses will remain in high demand to do the building. According to ConstructConnect, US data center starts—both AI and traditional—reached $26.9 billion over the first seven months of 2025. The figure is almost triple the amount for the same period in 2024 and nearly ten times greater than 2023.
Many construction sector companies capitalizing on the current surge in data center construction are privately held, multi-generational businesses with strong regional ties that have learned how to have staying power. Those legacies can make them especially attractive to acquirers and capital partners as the steady ‘pick and shovel’ providers in the new era of AI—but should also help them survive if AI’s current hyper-growth market of hyperscaling falls short of the current rosy predictions.
Nicholas V. Beare is a managing director in the investment banking division of New York City-based financial services firm Stephens. He heads its building and infrastructure group and co-heads its industrials group, also overseeing mergers & acquisitions, management buyouts and exclusive sales and divestitures, among other areas.