AI Stocks Without The AI Price Tag

Dane Bowler Investing Group Leader Follow Summary AI stocks are in a bubble, but infrastructure plays like regulated utilities offer durable, undervalued exposure to AI-driven growth. Temporary beneficiaries, such as chipmakers and IPPs, face risk as supply chain imbalances normalize and margins revert. Permanent beneficiaries—regulated utilities, contracted power providers, and data centers—secure long-term earnings growth from AI demand. Utilities trade at a 20.47x PE with 7%-10% annual growth, offering attractive returns and downside protection if the bubble bursts. Looking for a portfolio of ideas like this one? Members of Portfolio Income Solutions get exclusive access to our subscriber-only portfolios. Learn More » BING-JHEN HONG/iStock Editorial via Getty Images While we firmly believe AI stocks are in a bubble, it is undeniable that AI is powerful and likely a major driver of future earnings. Even with the dot-com bubble popping in devastating fashion, the internet upon which it was based is a clear source of value. As fundamental-based value investors, AI poses an interesting puzzle: How do we invest in the technology and underlying growth without exposing ourselves to the risks of a potential bubble? The headline AI names are trading at rather extreme valuations, essentially already building in tremendous success. Even those with seemingly reasonable multiples, such as the chip makers, are arguably bubble valuations if one adjusts for the cyclicality of earnings. We believe there is a different category of stocks that simultaneously provides exposure to the upside of AI while remaining compliant with fundamental value principles. We sought and continually purchased stocks of companies that were clear fundamental beneficiaries of the buildout of AI but had not yet experienced a bloom in valuation. Let us first walk through the phases of bubble formation as they played out and then discuss the opportunity set. AI bubble formation resonating outward As bubbles form, there is usually an epicenter where the hype is most concentrated and first appears. After the initial hype phase, it resonates outward to adjacent industries that participate somewhere along the supply chain. The current AI bubble began when OpenAI released its LLM to the world, and individuals could experience for the first time how powerful the technology could be. Thus, the epicenter was the explicitly AI companies. It was apparent that OpenAI could not do it alone. AI would need astronomical amounts of compute and infrastructure. So, the bubble resonated outward. 2MC Hyperscalers like much of the Mag 7 already owned vast amounts of computing power. Chip makers, led by NVIDIA but inclusive of the whole set, were the obvious picks and shovels of the AI gold rush. All the incremental compute would need 2 factors to be possible: Lots of power Data centers in which to house and power the equipment Independent power producers emerged as favorites because of their ability to sell power at market price rather than a regulated price. As auction prices spiked, their revenue multiplied immediately. Many data centers were requesting green energy, but their 24/7 nature required on-demand power that was difficult to produce from wind or solar, so nuclear received the lion’s share of hype. Anything remotely related to nuclear traded up to bubble valuation, even speculative nuclear and SMR (small modular reactor) startups. Data centers took a surprisingly long time to get bid up but eventually received bubble valuation. Finally, electric utilities are being seen as the gatekeepers of the incremental electricity production necessary to fuel AI. Valuations across the sector crept up but remain reasonable. Fundamentally responsible investing in AI The 2 greatest pitfalls to investing in AI today are: Bubble valuations Temporary fundamental benefit As the hype resonated outward, investors could have done very well by investing in each ring before the pricing went parabolic. Investing after the move seems a bit more dubious. As value investors, we were only able to invest before the move because our valuation principles precluded investment once prices went haywire. GE Vernova ( GEV ) is simultaneously a point of pride and remorse. We saw it early but also exited way too early as the stock surpassed what we viewed as reasonable valuation. It took a remarkably long time for the hype and extreme valuation to reach the outer rings in the diagram above. In 2025, data centers were still cheap. The market was so used to companies that experienced the demand boom in a more cyclical (high operating leverage) sort of way that Equinix ( EQIX ) got clobbered on its Investor Day presentation in 2025. SA The market just didn’t seem to comprehend that the growth EQIX was talking about was secular, repeatable growth, while something like a chip maker was experiencing cyclical growth. All the market saw was that EQIX’s growth number was smaller. It sold off, affording a