Deep spending on AI boosts the old, value economy

The current investment landscape for AI reflects a transition from hype to a more measured phase, with significant spending by tech giants like Google, Meta, and Microsoft on AI infrastructure. Despite the substantial investments, widespread adoption of AI remains distant, akin to historical tech booms such as personal computers and the internet. The full impact of AI may not be realized for a decade, suggesting that patient investors could benefit from potential future gains.

Value investors should exercise caution, as current opportunities in the semiconductor and hardware sectors are limited due to recent strong performance. However, research and attention to valuations could uncover prospects as some companies stumble or others leverage AI innovatively. The construction of AI data centers is driving demand for industrial equipment, creating opportunities for traditionally value-oriented companies in sectors like utilities, which are experiencing a power revolution to meet increasing electricity demands.

This shift in the utility sector, driven by the need for more power generation and modernized grids, is expected to fuel growth not seen in decades. While AI's transformative potential is yet to be fully realized, the intersection of old and new economies presents value investors with opportunities to capitalize on infrastructure development. Investors should remain vigilant about valuations and be prepared for a longer-term horizon to realize AI's full potential.