By Christine Ji
With AI stocks driving the market, investors are missing out if they aren’t playing the trend. This is the playbook that experts are following to get an edge.
Big Tech’s massive capital expenditures have made AI the dominating force in the market.
Three years ago, ChatGPT was an obscure technology that meant nothing to Wall Street. Today, artificial intelligence is seemingly the only thing that matters to the market.
With the “Magnificent Seven” tech names making up over 30% of the market capitalization of the S&P 500, and shares of huge companies like Oracle Corp. (ORCL) rallying 36% in a day on AI catalysts, investors can’t afford to fall behind on the AI trade.
AI development is moving at a rapid pace as the hyperscalers – the biggest cloud-computing players, including Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Meta Platforms Inc. (META) and Alphabet Inc. (GOOGL) (GOOG) – are on track to deploy nearly $400 billion in capital expenditures by the end of the year. AI adoption among consumers is also reaching an inflection point, John Belton, portfolio manager at Gabelli Funds, said during a fund webinar Thursday. ChatGPT’s weekly active users surged to 700 million in August, a fourfold increase from last year.
Picking the right AI investments is more important now than ever. “We are seeing an even more concentrated equity market and AI winner basket,” Mizuho desk-based analyst Jordan Klein wrote earlier this week. Here’s the AI playbook that Wall Street pros are following, with suggestions that go beyond simply buying Nvidia Corp. (NVDA).
The infrastructure builders
Betting on the picks and shovels of AI has paid off for investors from the beginning, and it remains the top AI trade.
There’s been insatiable appetite for AI infrastructure ever since the technology’s inception: Nvidia can’t manufacture enough graphics processing units to meet demand, CoreWeave Inc.’s (CRWV) data centers are filled the moment they come online and the U.S. power grid will require massive upgrades in coming years.
Belton and Klein remain bullish on semiconductor leaders such as Nvidia and Broadcom Inc. (AVGO). But for those who want a less crowded trade, energy presents an overlooked opportunity, according to Klein. Energy companies are positioned to benefit from increasing data-center power consumption, and Klein notes that many of the investors he’s spoken to are underexposed to AI-related power names. Klein sees energy stocks as a top AI play this year and favors fuel-cell provider Bloom Energy Corp. (BE).
Both Belton and Klein highlighted GE Vernova (GEV), a manufacturer and servicer of energy equipment, as another key beneficiary. Belton also likes the power-management company Eaton Corp. PLC (ETN).
A slowing capital-expenditure cycle could pose a risk to the continued success of companies associated with AI infrastructure. However, the ever-increasing amount of AI capex has made it incredibly difficult to bet against the momentum in this part of the market. And in Klein’s view, even as capex veers toward being “potentially excessive,” hyperscalers view the risks of underbuilding to be “the mistake of a lifetime.”
“It is frankly impossible to pinpoint when that cycle is going to peak,” Belton said. As long as demand for AI applications and services remains robust, “the capex cycle can go on for quite some time,” he added.
Read on: This is the critical detail that could unravel the AI trade: Nobody is paying for it.
The proven monetizers
Companies like Google and Meta are seeing results as they use AI to rapidly grow their advertising and cloud-computing businesses, and Belton is betting on these companies’ continued growth.
Big Tech companies are benefiting from leasing out their AI infrastructure to companies building generative-AI applications, leading to rapid expansion of their cloud-computing businesses. Google Cloud grew 32% last quarter relative to a year before, and it anticipates a $58 billion revenue boost in the next two years, the company said at the Goldman Sachs Communacopia + Technology conference this week.
In June, Goldman Sachs analyst Eric Sheridan highlighted digital advertising as a top area of AI adoption, second only to cloud computing. With AI, Big Tech companies have been able to create highly effective, automated advertising solutions that boost engagement.
For example, Google’s Performance Max and Meta’s Advantage+ ad tools tap into each company’s vast network of user data to provide creative assets and optimize and personalize ad campaigns. Due to their size and scale, Google and Meta will “disproportionately benefit” from AI advantages across the advertising landscape, according to Sheridan.
The strong monetization results are a positive signal for the AI trade, Belton believes. “The biggest investors in AI infrastructure across digital advertising and cloud computing are already generating very attractive returns on this big capex,” he said.
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The application leaders
There are also opportunities for investors to capitalize on companies using AI to transform their business models, although this trade is still in the early stages, with less visibility into the technology’s return on investment.
Belton identified the digital-workflow company ServiceNow Inc. (NOW) as an early adopter of agentic AI, providing AI solutions that require minimal human oversight. The company has developed a new Pro Plus software offering that uses AI to summarize cases, automate knowledge creation and resolve incidents.
“This product was nonexistent 18 months ago,” Belton said. It’s “still early, but very promising.”
Belton also likes cybersecurity company CrowdStrike Holdings Inc. (CRWD) and financial-software company Intuit Inc. (INTU), both of which have successfully launched agentic AI solutions.
The majority of AI adopters have been in the software industry, according to a recent note from Ryan Hammond, Goldman Sachs’ vice president of U.S. equity strategy. But AI has sparked a major debate among software investors: Some believe AI-native applications will render traditional software products useless, while others argue that AI will be a tool to enhance software applications.
It has led to depressed investor sentiment in the software industry, as investors haven’t seen immediate proof of AI-enhanced software revenues. But the area could be an opportunity for patient, long-term investors.
“Investors will likely require evidence of a tangible impact on near-term earnings to embrace these stocks,” Hammond wrote. Unlike the AI infrastructure trade, “there will likely be winners and losers” among AI adopters, he added.
Read on: The old software investing playbook is dead. Here’s where to put your money now.
-Christine Ji
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09-13-25 1200ET
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