4 tech stocks that can survive the AI trade upheaval

Ben McMillan’s clients at IDX Advisors are increasingly concerned about what would happen to their portfolios if the biggest spender in the AI space suddenly decided to close their wallets.

That’s a natural fear. Spending on data centers and other infrastructure by so-called hyperscalers such as Amazon, Alphabet and Microsoft has become a pillar of the AI trade that drives broad market profits. If investors start getting impatient for their spending to pay off, these companies could tighten their wallets and suddenly siphon huge profits from the beneficiaries of their capital investments.

There are no solid signs that this will happen anytime soon, with top hyperscalers estimated to spend $920 billion in 2027, up from about $750 billion this year.

But given the concerns that things can change quickly in the market, Mr. McMillan’s clients asked him to select non-semiconductor stocks that would give him the best of both worlds. In other words, companies that offer continued exposure to AI do not rely too heavily on the stable capex of hyperscalers and trade in a non-pure manner.

“Everyone is trying to make money in the chip space,” McMillan, chief investment officer at IDX Advisors, said of his clients.

McMillan shared with Business Insider four S&P 1500 stocks generated on his screen.

Amazon

Ticker: AMZN

This is a unique choice because Amazon itself is a hyperscaler. But the company also has other hyperscaler customers that are driving their AWS cloud business.

The good news is that Amazon has many lines of business beyond AWS, McMillan said.

“AWS represents only 18.0% of total revenue. The remaining 82% comes from retail, third-party seller services, advertising, and Prime subscriptions, which are tied to consumer spending rather than enterprise capital spending cycles,” McMillan said in an email. “Even if AWS growth is cut in half, e-commerce and advertising will keep the lights on.”

Equinix

Ticker: Ixx

Equinix is a data center REIT, so it’s naturally exposed to AI investments, but McMillan said the company’s more than 10,000 customers across multiple industries provide important diversification.

“While the hyperscaler pause will slow EQIX’s new build pipeline and booking momentum, it will not drastically reduce existing revenue,” he said. “This is a ‘real estate landlord’ exposure, not a ‘capital investment supplier’ exposure.”

Eaton

Ticker: ETN

Eaton makes parts for the power grid, and while AI spending is currently driving that sector, so too is spending on aerospace and government grid upgrades, McMillan said.

“If hyperscalers order crater, ETN loses upside potential in Electrical Americas (data center orders up ~240% year over year), but power grid modernization, aerospace and reshoring spending will keep the business up to ~70%+ growth,” he said.

digital realty

Ticker: DLR

The data center REIT has more than 90% occupancy of its data centers in the Americas, and existing leases are long-term, protecting short-term cash flow, McMillan said.

“America’s occupancy is 93.6% and our existing leases are long-term, which protects our short-term cash flow,” he said.