Do you remember the great AI sell-off of January 27, 2025?

The Chinese AI model DeepSeek had just appeared on the scene. Allegedly created with a fraction of the resources used by American models, many thought it would be a death blow to American tech.

Investors certainly didn’t wait around to find out.

Almost everything related to the larger AI trend took a hit. The most dramatic move was Nvidia (NVDA), which fell as much as 17% shortly after the market opened. Ultimately, NVDA lost nearly $600 billion in market cap on January 27, making it the worst trading day for a single stock, ever. Many feared the worst and braced for a prolonged bear market in all things AI.

If all that sounds like a vague memory, don’t worry. Because the market has mostly forgotten about it, too.

Have a look at NVDA. The stock is up close to 16% since that bruising day in late January.

This trend holds true for many of the other AI-centric stocks that were beaten down a few weeks ago.

What changed?

Well, two things…

First, 2025 capital expenditures (capex) guidance from the Big Tech firms was incredibly strong over the next few weeks. See for yourself.

Put simply, the large firms aren’t slowing spending anytime soon. That’s good news for companies like Nvidia and other suppliers related to artificial intelligence.

Second, the market took a moment to think and remembered Jevon’s Paradox. The paradox comes from an observation relating to the coal industry and the introduction of the efficient Watt steam engine in the 19th century. Here’s Brad:

With the highly-efficient Watt designs gaining adoption, it was assumed that demand for coal would fall, hurting the industry. After all, if a machine can do the same job with less coal, overall demand should fall.

Right?

As it turns out… that wasn’t the case.

That was the conclusion of William Stanley Jevons, who wrote The Coal Question in 1865. Jevons wanted to study the impact the Watt steam engine had on England’s coal business.

[…]

The major efficiency gains by the Watt engine inspired all sorts of new businesses to adopt steam power, resulting in increased coal demand.

It’s an interesting observation that has proven correct time and time again. As the inputs required for an operation decrease, demand for that input increases, not decreases.

That news erased a lot of the DeekSeek fears. And Mr. Market was buying into AI momentum again.

The sell-off in AI suppliers (semiconductors, data centers, power generating companies) appears to have been short-lived. But you never know when you’ll get a chance to buy great companies at temporarily discounted prices.

Today, we’re building a shopping list. Below, you’ll find the companies we’d want to own – and the sectors we’d like more exposure to – in the event of another downturn.

Secular Themes Worth Owning: Semiconductors
Right now, just every semiconductor company in the world is trying to carve out a niche in the AI world.

Nvidia (NVDA) dominates the graphics processing unit (“GPU”) market. This has led to historic profit margins (gross margins came in around 75% last quarter) and enormous profits ($19.3 billion).

But data centers won’t just need GPUs. They’ll need Central Processing Units (“CPUs”) and memory chips as well (millions upon millions of them).

Huang’s Law, named after Nvidia’s CEO, Jensen Huang, points out that GPU processing power is accelerating much faster than traditional CPU chips.

Huang’s Law shows that GPU power is more than doubling every two years. This is something that most technologists would have deemed impossible just a few years ago.

This level of annual disruption makes picking and choosing long-term winners in the semiconductor industry difficult. But, the VanEck Semiconductor Fund (SMH) can be a good option for investors looking to own the entire industry.

At the very least, semiconductors deserve to be on your radar. They’re not going anywhere.

Secular Themes Worth Owning: Electric Infrastructure
All of the data centers that $300 billion-plus capex points towards have to be built by someone.

These are highly technical structures and there aren’t many companies in the world capable of building them. The few that are have rallied in recent years.

That growth doesn’t appear to be slowing anytime soon. And these are names we’ll want on our shopping list.

Comfort Systems (FIX) and EMCOR Group (EME) specialize in large-scale electrical and HVAC installation which are required for data centers to operate.

Vertiv Holdings (VRT) is the leading player in the liquid cooling systems that stop data centers from overheating. Vertiv builds integrated server racks for data-center installations, specializes in all of the circuitry required for these systems to operate, and provides its clients with ongoing maintenance over the life of these systems.

Vertiv has been one of the best-performing stocks in the entire market in recent years. Yet, it’s down more than 20% since the DeepSeek headlines arose, giving investors who missed out on the initial rally a chance to buy in at lower prices.

An ancillary play on liquid-cooled data centers is Ecolab (ECL). This process requires a lot of water, which must be completely pure and constantly recycled. In an effort to gain exposure to the AI trend, EcoLab has carved out a niche in the water purification process for data centers.

These data centers are all going to have to be connected to the grid… and the existing electric grid is going to have to be modernized to keep up with new-age demand.

Quanta Services (PWR) is the leading company in the U.S. in terms of building out electric infrastructure (transmission and distribution lines, substations, and communications networks). The company also specializes in underground utilities, pipelines, and renewable energy solutions (hooking up renewable power to the grid).

It’s not just AI and data centers that are driving demand for electric power infrastructure. So are electric vehicles, advanced manufacturing facilities, and robotics. Each of these industries has secular tailwinds as well, making the electrification stocks attractive over the long term.

Companies like Eaton (ETN), AMETEK (AME), Emerson Electric (EMR), and Amphenol (APH) make the hardware used in the electrification trend. These are all mature industrial companies with long histories of strong fundamental growth that should continue for years and years because of the growth tailwinds at their backs.

Secular Themes Worth Owning: Power
All of this electricity has to come from somewhere… and because of rapid advancements in AI, we’re running out.

Caroline Golin, Alphabet’s head of energy market development, spoke at the Energy Institute in New York City this week and gave somewhat harrowing news.

She said, “We are in a capacity crisis in this country right now, and we are in an AI race against China right now.”

When building out its data centers, Alphabet realized it was up against a “very stark reality that we didn’t have enough capacity on the system to power our data centers in the short term and then potentially in the long term.”

This has inspired Alphabet to sign deals with nuclear power providers. And they’re not the only ones. Microsoft and Amazon have recently inked major deals in the nuclear space as well.

Vistra (VST) and Constellation Energy (CEG) are the closest thing to pure plays that investors can find with regard to large-scale nuclear energy production. These stocks trade with high valuations compared to traditional utilities. They’re also much more volatile. That’s one of the reasons we’ve advised our readers to avoid them for the time being.

But in the event of another big sell-off, the volatility could provide attractive opportunities for nimble investors.

Lastly, I want to put a spotlight on GE Vernova (GEV).

This is a recent spin-off from General Electric that focuses on energy solutions across the nuclear, oil/gas, and renewable industries… while also producing and installing much of the hardware that benefits from the electrification trend.

GEV shares are pricey, but this company is as close as it gets to a one-stop-shop for investors looking for broad exposure to energy production, transmission, and distribution that should benefit from the wide-scale data center buildout. Once again, in the event of another market downturn, keep it on your list.

Practice Patience
None of these stocks are cheap. Nor should they be with such strong secular tailwinds behind them. And that’s why they remain on a “shopping list” – rather than an outright recommendation – for now.

Overpaying for stocks – even if they have double-digit growth prospects – can diminish forward-looking return prospects. Therefore, investors who missed the boat of these trends and now find themselves on the sidelines need to be wary of FOMO.

There’s always an urge to “do something.” But sometimes, being patient, and doing nothing, is doing something.

And we might not have to wait too long…

The Consumer Price Index report – the government’s official reading of consumer inflation – shows that the battle on inflation might not be won. The year-over-year reading on the top line was 3%. This was the first time that the inflation print had a 3-handle in seven months. Economists had expected 2.9%.

Renewed inflation means the Federal Reserve might think twice about cutting rates further. In a worst-case scenario, the Fed might even hike again.

And if that day ever comes, many of the stocks I listed will become cheaper… perhaps much cheaper.

And if that happens… you’ll want to have your shopping list handy.

Regards,

Nick Ward

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Source: Wide Moat Research