Picks and Shovels Still Win

The AI trade has entered a more volatile phase.

Big-spending tech giants and software companies have stumbled, even as capital expenditures tied to artificial intelligence keep rising.

Five companies (Alphabet $GOOGL ( ▼ 1.06% ), Amazon $AMZN ( ▼ 0.41% ), Microsoft $MSFT ( ▼ 0.13% ), Meta Platforms $META ( ▼ 1.55% ), and Oracle $ORCL ( ▲ 2.34% )) are projected to spend about $715 billion this year, a 60% increase from last year.

Yet investors have punished many of them, wary of returns on such massive AI bets and unsettled by turmoil around OpenAI’s aggressive dealmaking.

Software stocks have taken another hit after new AI tools from Anthropic reignited fears that coding agents could undercut enterprise vendors.

Shares of companies such as Salesforce $CRM ( ▲ 2.31% ) and Palantir Technologies $PLTR ( ▲ 1.77% ) have slid, as investors question how durable traditional software revenue will be in an AI-first world.

The relative safe haven has been the “picks and shovels” layer of the AI ecosystem. Chipmakers and equipment suppliers that sit directly in the path of rising capital spending continue to attract capital.

While even leaders like Nvidia $NVDA ( ▼ 2.21% ) and Broadcom $AVGO ( ▼ 1.81% ) have faced volatility, memory-chip makers have surged as data-center demand strains supply.

According to Counterpoint Research, DRAM and NAND prices have jumped 80% to 90% in the first quarter. That benefits companies like Micron $MU ( ▼ 0.56% ) and SanDisk $SNDK ( ▼ 0.59% ), along with equipment makers such as Lam Research $LRCX ( ▲ 1.83% ).

The mood around AI may be fractured. The capital spending is not.

For now, investors appear more comfortable owning the suppliers of the gold rush than the prospectors.