Expanding Gen AI Infrastructure to Benefit Industrials and Materials Sectors: Wells Fargo Via Investing.com

The generative expansion of AI-related infrastructure is expected to benefit companies in the industrial and materials sectors, Wells Fargo analysts said in a note Wednesday.

They noted that as governments and private sector entities around the world propose significant AI-related spending, the need to modernize infrastructure to accommodate technological advances becomes crucial.

When considering increasing portfolio exposure to industrials and materials companies, investors need to understand several general characteristics of these sectors. Analysts emphasize that the most important issue is the role these companies will play in contributing to the development of technological infrastructure.

“While much of the market attention to date has focused on who can currently or potentially rapidly capitalize on Al generative technologies from a product and revenue standpoint, the fact remains that little can happen to actually increase the use of these products until the infrastructure is in place. properly equipped and updated,” analysts wrote.

According to analysts, companies from the Industry and Materials sectors play a key role here. These sectors not only provide exposure to the development of artificial intelligence, but also maintain lower valuations compared to the “Magnificent 7” technology companies, they explained.

They also said that companies classified by Standard & Poor’s in these sectors are responsible for key upgrades and construction of plants and electrical networks necessary to support artificial intelligence technologies in the future.

“These sectors tend to have high international exposure. The latest FactSet data shows that 33% of industrial sector revenues and almost 52% of materials sector revenues come from outside the United States,” analysts say.

“This means that revenues associated with building infrastructure and upgrading electrical installations around the world will likely contribute to the profits of the domestic companies involved.”

Companies in the industrial sector, particularly those involved in building products, construction and engineering, construction machinery, heavy transportation equipment, industrial conglomerates and electrical components, are well positioned to capitalize on the growth in AI spending.

Similarly, the materials sector will benefit, where sub-industries such as construction materials and steel are expected to play a key role. These raw materials are necessary to build data centers and energy networks, which are the basic elements of AI infrastructure.

“Think of it like raw materials like concrete etc. that are used to build data centers and power grids,” say analysts.

“While both of these sectors are traditionally very intertwined with the economy, we believe that the generative focus on Al will lead to the construction of large-scale infrastructure that will benefit the core industries represented by both of these sectors, even in a slower economy,” he added. They concluded.