(Bloomberg) — Signs that equity investors are getting cold feet over the rapid advances in artificial intelligence leaders have put a highlight on some less obvious beneficiaries of the technology boom.

Most Read from Bloomberg

A sevenfold surge in shares of Nvidia Corp. since the launch of ChatGPT in late 2022 helped drive a megacap-led rally everywhere in the world. But concerns over the sustainability of those gains along with geopolitical tensions and shifts in global monetary policy are literally driving a broadening of the market amid a hunt for brand recent drivers.

Investors are selling AI giants to snap up smaller stocks and defensives that had lagged behind. That rotation coincides with the AI theme’s expansion to areas beyond chips and software, including the vast amounts of power and land the technology requires along with what industries may eventually take advantage of its implementation.

“Speculatively, we’ve seen some emergence of AI-related trades outside of tech and communications,” though those two groups still dominate, Gina Martin Adams, chief equity strategist for Bloomberg Intelligence, said in a recent webinar. Utilities saw a “bump in optimism throughout the second quarter related to the concept AI would command more investment along with ultimately result in stronger growth.”

While tech and communications remain the very best two performers on the MSCI World Index yr thus far — up greater than 14% each — they’re the two worst performers thus far this quarter. The two biggest gainers because the tip of June have been real estate and utilities.

Here’s a take a take a look at the prospects for various sectors:

Power Supply

The surge throughout the tech industry’s electricity demand is outstripping the available supply in plenty of parts of the world. The International Energy Agency estimates usage by data centers, AI and cryptocurrency may double to greater than 1,000 terawatt-hours in 2026 — roughly resembling the flexibility consumption of Japan.

That’s put think about utilities everywhere in the world, from Dominion Energy Inc. and Southern Co. throughout the US to Southeast Asia’s YTL Power International Bhd. and Gulf Energy Development PCL.

“We consider that the wide adoption of AI may thoroughly be a game changer for the flexibility generation industry,” said Evgenia Molotova, a senior investment manager at Pictet Asset Management Ltd. “Depending on the speed of adoption, AI can require data center buildout of two-to-three times the current size of the knowledge center industry by 2030.”

Story continues

Equipment

Transformers — equipment that help deliver electricity from the generator to the user — are in such shortage that once you order one today, you possibly can be lucky to receive it in 2028, in step with Ken Liu, a China utilities analyst at UBS Group AG.

That’s boosted shares of top transformer makers this yr, including General Electric Co., France’s Schneider Electric SE and Japan’s Hitachi Ltd.

“Energy infrastructure is usually a really big theme, and that was even before artificial intelligence, which only adds to the need for more energy consumption,” said Philipp Baertschi, chief investment officer at Bank J. Safra Sarasin AG. “There may be excellent opportunities. Yet one must know that these are very cyclical, and there’s quite a lot of volatility.”

Renewables

The dramatic increase in power usage also raises the specter of increased pollution, drawing attention to renewable energy shares. Corporations involved in solar, hydro, wind and nuclear power have all been mentioned as potential beneficiaries.

China has led one of the simplest ways by means of the share of various energy added annually to its national grid, noted Chris Liu, senior portfolio manager at Invesco Ltd. While the nation’s 90% share of world solar cell production is caught throughout the US and Europe’s tariff crosshairs, hydro stocks including China Yangtze Power Co. and Sichuan Chuantou Energy Co. could see investor attention rise.

The AI angle has also put a highlight on alternative-energy stocks in other regions, from Dutch turbine maker Vestas Wind Systems A/S to South Korean hydrogen-related firm Doosan Fuel Cell Co.

Copper

Even commodities have an AI trade, with copper a key material in electric cables along with heat exchangers that help cool data centers. Related stocks include Freeport-McMoRan Inc., BHP Group Ltd. and China’s Jiangxi Copper Co.

“Global copper consumption is vulnerable to be two million tons higher by 2030, with over half from the US, as power-hungry AI fuels data-center capability growth,” said Bloomberg Intelligence analyst Grant Sporre.

Data Centers

Data centers are a play on the need for land to host computing facilities which may be near each power sources and major AI customers. Leading real estate investment trusts that concentrate on the sphere include Equinix Inc., Digital Realty Trust Inc. and Singapore-based Keppel DC REIT. Shares of Australian property firm Goodman Group have climbed about 35% this yr on the AI boost.

Southeast Asia is seen as a rising AI hotspot, and native telecommunications firms like Telekom Malaysia Bhd and Advanced Info Service PCL in Thailand want to data centers as a recent growth engine. Philippine telecom PLDT Inc. is searching for a valuation of over $1 billion for its data center portfolio since it weighs a partial sale or REIT listing.

End Users

Beyond the megacap AI “enablers” and lesser known pick-and-shovel names, some market strategists are specializing in the companies that stand to appreciate by implementing the technology to boost their businesses.

Morgan Stanley estimates shares of those “adopters” will see a median boost of 27% this yr as resulting productivity gains help lift their results. It sees industrials as one among the many sectors benefiting essentially probably the most.

“Should you’re taking a take a look at an important market-cap names, it is perhaps firms like Deere & Co., which is leveraging the info that’s coming off agricultural equipment to optimize farming,” said Katy Huberty, Morgan Stanley’s global director of research. She also highlights Paccar Inc., which designs and manufactures large business trucks.

AI’s ability to research large, complicated data sets efficiently will also be seen as a boon to the health-care industry, particularly in helping speed up the drug-development process. Scott Schoenhaus, a healthcare technology analyst at KeyBanc Capital Markets Inc., recommends smaller biotech stocks including Recursion Pharmaceuticals Inc. and Schrodinger Inc. on this idea.

Top Tech Stories

• Taiwan Semiconductor Manufacturing Co. shares fell essentially probably the most in three months as trading resumed in Taiwan after a two-day typhoon break, joining a world tech rout as investors dramatically soured on the guarantees of artificial intelligence.

• CrowdStrike Holdings Inc. Chief Executive Officer George Kurtz said in a Thursday LinkedIn post that greater than 97% of the company’s Falcon agent sensors that use Windows are literally back online.

• With the Summer Games set to open, organizers say they expect a flurry of additional cyberattacks. They’ve many reasons to stress.

–With assistance from Allegra Catelli.

(Adds ‘Top Tech Stories’ section)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.