After a steep pullback in AI-related equities so far in 2025, Wells Fargo’s Christopher Harvey argues that infrastructure and service providers—the “picks & shovels” of the AI revolution—are once again attractive. Here’s why investors may want to reenter this durable supercycle.
YTD Drawdown Uncovers Compelling Value
Harvey highlights that many AI-infrastructure names have been sold down sharply this year, creating entry points not seen since early 2024. With valuations resetting, the risk/reward profile now tilts in favor of long-term holders:
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Stronger Fundamentals: Unlike the dot-com era, today’s AI capex is driven by profitable, cash-generating hyperscalers and enterprise adopters.
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Balanced Sheets: Leading providers of GPUs, servers and networking gear maintain healthy leverage ratios, smoothing through market volatility.
To monitor these evolving balance-sheet metrics and margin trends across the AI ecosystem, analysts often consult the Ratios TTM Statement Analysis API, which delivers up-to-the-minute profitability and efficiency ratios.
Durable AI Supercycle vs. Traditional Tech Cycles
Harvey compares the current environment to the 2022 opportunity in communication services stocks—where long-term secular growth trumped near-term headwinds. Key distinctions for AI today include:
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Symbiotic Investment Loop: Infrastructure spend by hyperscalers drives application innovation, which in turn fuels more hardware capex.
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National Strategic Importance: Policymakers view AI as critical for competitiveness, making budgets less elastic even in downturns.
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Faster Refresh Cadence: AI models and hardware generations cycle on a 12–18 month cadence, accelerating demand versus legacy IT refreshes.
Earnings & Capex Signals
Recent results from hyperscalers underscore the imbalance between soaring AI demand and constrained supply:
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Microsoft’s Q2 Earnings featured record server-farm capex guidance.
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Meta’s Spending Plans call for multi-year investments in AI training clusters.
Investors tracking management commentary on AI budgets and capex pacing should reference the Earnings Transcripts API for exact quotes and forward-looking remarks.
Tariff Concerns Remain Limited
Harvey downplays tariff risk for AI supply chains:
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USMCA-Compliant Goods: GPUs and finished servers imported from Mexico, which supplies two-thirds of U.S. server imports.
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Geographic Diversification: Manufacturers have shifted fabrication to tariff-friendly locations, mitigating sudden cost shocks.
Investing Considerations
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Entry Points: Look for pullbacks toward long-term moving averages—historically strong support zones during tech cycles.
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Balance-Sheet Quality: Favor firms with ≤2× net debt/EBITDA and healthy free cash flow yield.
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Capex Visibility: Prioritize names with clear multi-year contracts from cloud leaders.
With valuations more attractive and demand still outstripping supply, Harvey believes the AI picks & shovels strategy offers a durable, defensive growth angle—one that’s less exposed to cyclical downturns and tariff shocks than asset-light software names.
