JPMorgan says AI stocks are ‘picks and shovels’ play that can beat big tech

Asset manager BlackRock said Tuesday that U.S. tariffs on Canada, Mexico, and China have made it harder to assess long-term stock value, particularly in AI.

“We still see AI driving corporate earnings strength, but this scenario is becoming more uncertain,” BlackRock wrote in a recent note.

According to the firm, AI stocks themselves come with risks—particularly steep valuations. “Nvidia’s revenue has surged roughly sixfold in just two years, yet its valuation dipped as earnings growth outpaced the share surge,” BlackRock noted.

“Valuations, especially for tech, look as lofty as in the dot-com bubble or the 1920s peak based on some metrics.”

In response to economic uncertainty and steep valuations, BlackRock is mulling to diversify back into private markets. “We stand ready to pivot—and see private markets playing a key role,” the firm wrote.

Although BlackRock still expects U.S. corporate earnings to grow on the back of AI, its note referenced a readiness to “pivot” three times, underscoring a more cautious stance.

Tuesday’s commentary marks a U-tun in tone from just four months ago when BlackRock compared AI to the Industrial Revolution—estimating that annual investment in AI will reach $700 billion by 2030.

JPMorgan: AI is picks-and-shovels play

JPMorgan isn’t exactly on board with Blackrock.

The asset manager sees AI as a capex-driven opportunity, arguing that the real winners may not be the tech giants leading the charge but the companies supplying the infrastructure behind it.

In a February 28 note, JPMorgan strategist Stephanie Aliaga said the bank favors “picks and shovels” plays—semiconductor firms, cloud providers, and data center operators—over the household-name tech giants.

“Robust fundamentals should provide support for valuations, but waning enthusiasm and decelerating earnings growth may limit price momentum for these tech giants this year,” she wrote.

The Magnificent Seven—Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), NVIDIA (NVDA), and Tesla (TSLA)—have spent heavily on AI, but the real opportunity may lie further down the supply chain.

“Four major hyperscalers—Microsoft, Alphabet, Amazon, and Meta—are projected to spend a cumulative $318 billion this year, accounting for roughly 50% of the entire market’s capex growth,” Alliage wrote.

“Meanwhile, the four-year Stargate Project, a $500 billion initiative led by OpenAI, SoftBank, Oracle, and MGX, plans to build AI data centers and energy facilities in the U.S., with an initial $100 billion phase in Texas,”

After driving more than 70% of the S&P 500’s returns in 2023, the Magnificent Seven have struggled in 2024. Will the “pick-and-shovel” strategy prove to be the winning play as the AI gold rush reaches a fever pitch?