99% of Investors Miss The AI Backbone (My Full Map)

[00:00:00] Speaker 1: 7 trillion dollars is about to get poured into one specific area and most investors aren't even looking at the whole picture mckinsey states that data center infrastructure will grow between 14 and 23 percent a year over the next five years this is the biggest physical build out since probably the railroad was booming and it's happening behind all of the headlines of course everyone is watching nvidia's stock price but almost nobody pays attention to the buildings that are going up behind it and that's where the real story begins people are asking where all of these nvidia gpus are actually going and the answer isn't a mystery they're all being packed into these massive data centers that are built to run ai models around the clock but most people never see that part of the industry so they have no idea why the build out is exploding even bill gates said that ai is the biggest technological shift of his lifetime and i've seen this firsthand because i used to work on machine learning models for amazon when i worked on their pricing models and that was long before this was ever mainstream my point is that ai is not speculative but i do believe that it is completely misunderstood it's already replacing entire chunks of work and it's coordinating fleets of robots in logistics and manufacturing now data centers aren't these little server rooms these buildings stretch the size of football fields and some use more electricity in a year than the entire state of alaska and inside you've got hundreds of millions possibly even billions of dollars worth of hardware that has to stay powered cooled and connected every second of the day or the whole system just falls apart goldman sachs expects data center power demand to jump 165 by 2030 and if power demand grows that fast something has to build and fuel the grid behind it that's why i covered nuclear stocks a few weeks ago and of course several times over the past two years because ai doesn't run without massive stable electricity now here's where that seven trillion dollars actually goes and more importantly who gets paid from it and i'm going to state right now that i had created a massive spreadsheet of every public company that i could possibly find that fits within this space and of course i will have a link to all of those down in the description but for this video i'm going to be breaking out where the money is flowing several companies that are tied to each of those areas and how i'm going to be investing broadly into each tier but first here's why the build out is hitting overdrive right now people think that ai lives in the cloud but every single prompt runs on physical hardware that's within these facilities elon's colossus cluster in memphis uses around a hundred thousand nvidia h100 gpus for training meta is building the same kind of scale for llama at this point these facilities need their own power substations just to stay online nvidia's newest ai chips pull up to three times more power than the last generation and all that energy turns into heat real fast that's why these facilities need industrial grade liquid cooling systems dedicated power infrastructure backup generators battery banks and of course networking goldman sachs says that the us data center construction has tripled in the last three years and it's still accelerating once again ai isn't just about cloud-based software it includes steel concrete electricity and cooling and that's where the real money is flowing right now now before i jump into the breakout if you're getting any value from my content and my spreadsheets and my free newsletter with my portfolio then please consider pressing the like button so my content can continue to grow mckinsey's report breaks that seven trillion dollars into two main buckets 60 percent goes to compute the servers gpus chips memory and of course storage basically the machines that are doing all the work 40 percent goes to the facilities it's the buildings the power systems the cooling the real estate it's the shell that keeps the whole thing alive that's roughly about 4.2 trillion flowing into hardware and cloud platforms and another 2.8 trillion into power cooling and the physical footprint that's behind it here's why this split matters for us investors the two layers behave nothing alike they have different growth they have different risk and they have different winners the compute layer is the high growth side ai chips cloud platforms server manufacturers these are companies that can grow 20 30 and even 50 percent a year because ai demand isn't slowing down but it is a faster game technology moves quickly and one new chip design can reshuffle the entire market share simply overnight the facilities layer then is steadier power systems cooling equipment data center real estate think more like 10 to 15 percent annual growth it's not flashy but it is essential and this side wins no matter which chip company comes out on top think of it this way the compute layer is betting on who's going to win the ai race but the facilities layer well they're betting that the race happens even at all and someone of course has to build the track that now leads us to our sponsor funstrat which was founded by tom lee a trusted wall street voice and former chief equity strategist at jp morgan that i often refer to in my videos tom lee's fs insight by funstrat is dedicated to democratizing wall street research and their goal is simple empower self-directed investors like us with the same evidence-based research that wall street uses to navigate the market where i know that i personally look forward to their emails every day we know tom for his signature evidence-based research and famous calls like the v-shaped recovery after covet when you join the multidisciplinary team sends you real-time market alerts called flash insights daily video updates and actionable research across equities and crypto this gives you the clarity to make better more timely decisions and confidently control your portfolio if you want access to the same research that banks and hedge funds use now more than ever is the time to invest in knowledge and right now this is fs insights biggest sale of the year you can choose from macro crypto or even their pro package if you'd like to learn more please feel free to check it out down in the description below mckinsey says that 60 of the money is going to be going into compute and 40 into the facilities but that doesn't necessarily mean that we have to invest 60 40. if you're like me and your goal is maximum upside then i would lean in heavier into the compute because that's where the fastest growth lives today that and it has long-term demand meaning once a data center is built the construction companies don't really make any more money from it when i look at the data mckinsey's 60 40 split makes a lot of sense from a high level compute on one side facilities on the other but of course there's a third group that's sitting above both layers and they break every rule within this model and of course these are the hyperscalers think amazon microsoft and google these companies don't just buy data center capacity they're actually at a time they're negotiating multi-gigawatt power deals before the rest of the market even knows that the demand is coming in fact they're even designing their own chips amazon's tranium and graviton google's tpus microsoft's maya they're engineering silicon specifically for their own ai workloads so they're not solely dependent on anyone else and even now they're inventing their own cooling system just last week amazon rolled out its own in-house liquid cooling system because the traditional suppliers are backlogged for years because they weren't willing to wait they built their own system so they could deploy their high density gpu racks right now not in 2027. they're also running the clouds where every enterprise ai workload lands today this is aws azure google cloud and of course they're not alone oracle is accelerating with their ai hpc leasing alibaba and tencent run massive ai regions across asia and ibm is carving out their own niche within the regulated industry but once again those big three still sit in a category all their own they're the only players that are touching every layer of the stack and that's why hyperscalers in my mind get their own bucket let's go ahead and jump into the compute layer because this is where most of the growth is happening and everything begins with the chips where nvidia is still way out in front of everybody else but amd has real momentum with our mi300 and broadcom and marvel are showing up inside almost every major ai system and intel is still there pushing hard to get back into the conversation and the thing that most people overlook is memory gpu demand is huge but memory demand is exploding right alongside of it this translates into micron samsung and sk hynix which are all sold out in high bandwidth memory for years out once again these systems can't run without massive amounts of memory then we've got the companies that are turning all that silicon into actual racks super micro has been scaling almost faster than anyone else in this area then you have dell and hbe which anchor the enterprise market then there's lovo which is huge across asia and has a big share of global server shipments and it's not just the big companies anymore there's a growing group of gpu cloud providers trying to keep up with all that demand think applied digital akamai digital ocean iris energy they're all building out dedicated ai compute as fast as they can get hardware delivered and then they're leasing it out to those big players also as quick as they can and of course behind all of this is the semiconductor supply chain taiwan semiconductor manufactures almost every advanced ai chip that's out there asml is the choke point for the tools that everyone needs in creating these chips lamb research kla and applied materials they handle the rest of the equipment that makes these high-end chips even possible then once that hardware hits the racks the networking becomes critical arista leads the cloud scale switching cisco drives a lot of that enterprise traffic and companies like sienna lumentum and coherent move data across long distances between buildings regions and entire countries this whole layer is moving extremely fast it's where most of the revenue growth is happening today and it's the part of the stack that investors look at when they're aiming for a lot of that upside now let's go ahead and move into the facilities layer this is the part of the system that you never really see but nothing works without it we'll start with power and cooling because that's where most of the physical build out is happening where vertiv is tied directly to the rise in ai data centers eaton and schneider electric handle the electrical distribution and the switch gear then johnson controls train and daikin manage the thermal side then modine and invent are growing really fast too as more racks shift to high density cooling then of course you have the grid itself ai is pushing power demand higher than the grid was ever designed for so companies like siemens abb and quanta services are all seeing real tailwinds where you have bloom energy and cummins helping with on-site generation and backup power when facilities need more stability than the grid could ever provide from there it's the companies that actually own the buildings equinix digital realty and iron mountain build and lease these types of shells they provide the space the interconnects and the reliability that lets everyone else plug in and scale and then you've got fiber and optical side the long-haul links between all these data centers infinira is a company that handles long-distance optical systems then you have fujitsu and zte which are major suppliers in asia and these companies move the data between campuses regions and entire countries finally you have the software layer that keeps the whole environment stable think vmware ibm nutanix and service now they handle the orchestration virtualization and the automation the stuff that keeps workloads balanced and the hardware running efficiently but unfortunately this layer doesn't move quite as fast as compute but it does scale with every new facility every new rack and every new watt that gets pulled onto the grid and the best part is it's steady and it benefits no matter which chipset or cloud platform is winning so now that we've laid out all the layers the hyperscalers the compute names and the facilities let's talk about how i actually invest in this because knowing the players is only step one it isn't the same as knowing where to put the money to work the hardest but before i break anything out here's the simple truth not every part of this ecosystem grows at the same speed like i keep saying compute keeps moving the fastest facilities move a little bit slower but they are very consistent and hyperscalers sit right in the middle they're big they're steady and they're essential for me the goal is never just to own everything equally my goal is to match the growth the risk and the timing with what the data is telling us today and i think that most of us can agree that the data is fairly clear the money that's flowing into ai and data centers it is not being split out evenly most of the upside is landing in compute and most of the stability is coming from facilities and the hyperscalers well they capture pieces on both side without a lot of volatility and once again i want to share that i have a massive spreadsheet down in the description with over a hundred companies that i happen to be tracking in this particular space where i promise that i'm going to continue to drill down and find the undervalued and the highest return opportunities over time today i've probably mentioned a lot of stocks that you're unfamiliar with and i'll dive into those in future videos but for now here's how i'd put a hundred dollars to work across the data center stack today 45 goes straight into compute this is the fastest growing part of data centers think chips memory servers networking and the demand is still running really hot 30 then would go into hyperscalers amazon microsoft google they're building the data centers they're filling them and they're running the cloud platforms that sit on top and they'll generate revenue for the long term and my last 25 would go into facilities power systems cooling electrical gear real estate these companies get paid every time a new data center flips the lights on regardless of what chips are inside now what does that hundred dollars look like in five years using what i think is realistic growth rates for each of these groups compute would be growing in the low 20 range hyperscalers around 12 to 13 and facilities around 8 to 10 percent that simple 100 would then grow into roughly 200 to 235 dollars there's really no guessing there's no moonshots it's just clean clean exposure across the parts of the data centers that are doing the real work now i always try to give some added information to those of you that prefer etfs and two that align to data centers the most are the globalx data center and digital infrastructure etf with the symbol dtcr and the ishares us digital infrastructure and real estate etf idgt now i have to admit that i have not dug into these much at all but they do cover a fair amount of these basics honestly i wish that i had the ability to make my own etfs as i'd make them so much more efficient from what i see in the market some of the companies in these etfs really make no sense to me but hey i digress in summary by 2030 analysts expect global data center power capacity to jump from 81 gigawatts to 222 gigawatts because ai needs far more horsepower than the grid was ever built to deliver and that's the real investment story the companies building the compute engines and the companies building the backbone that's right behind them they're all stepping into a seven trillion dollar wave that's already in motion in my opinion the money isn't in the hype it's in the hardware the power and the concrete that makes ai even possible and that's where the next five years of returns gets decided as always thank you so much for watching