Two stocks to profit from the AI data center building boom

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Today’s issue in preview:

• Two stocks to profit from the AI data center building boom

• Two inflation defense stock ideas you won’t hear about anywhere else

• A booming industry that pays you huge yields to own it

• Learn our Top Themes to buy now

Two stocks to profit from the AI data center building boom

Credit: Bilanol

As it turns out, getting long the “Made in America” megatrend was a good idea.

This week, the giant construction equipment rental firm United Rentals (URI) reported outstanding second-quarter business results. Rental revenue reached $3.84 billion, a 12.7% year-over-year increase. Net income increased 21% to $753 million.

Large money managers cheered the results by sending URI shares up 10% to a new all-time high.

Back in June, I detailed how construction equipment rental firms United Rentals and Sunbelt Rentals (SUNB) are compelling ways to invest in the twin megatrends of American manufacturing capacity expansion and the AI data center building boom.

Faithful Money & Megatrends readers are familiar with the bull case here.

Given AI’s enormous promise, large tech firms such as Google (GOOG), Amazon (AMZN), Microsoft (MSFT) and Meta (META) have invested over $1 trillion in AI infrastructure. They are on pace to invest more than $700 billion this year alone and more than $3 trillion after that. A lot of this money is spent on data center construction. We can’t build data centers fast enough to meet AI demand. This is bullish for construction and equipment rental firms.

But the outlook here gets better: President Donald Trump – and many business and military leaders – believes that the U.S. has outsourced far too much of its industrial capacity to China over the past 25 years. We outsourced large portions of our semiconductor, appliance, medicine, weapons, and machinery production. We outsourced the capacity to produce and process critical resources, such as rare earth elements.

The COVID-19 pandemic showed that depending on other countries for critical economic inputs makes the U.S. economy less safe and secure. To put it bluntly, it is very stupid not to make products that are vital to national security – like AI semiconductors – within our own borders.

Trump has staked his legacy and reputation on expanding our industrial base… and he’s working with business leaders to invest trillions to pursue this goal. Apple (AAPL), for example, has committed to invest $600 billion in U.S.-based manufacturing over the next four years. Nvidia (NVDA) says it will invest $500 billion in U.S.-based manufacturing over the next four years.

In other words, the world’s richest, most powerful companies are spending money on an epic scale. And they are moving as fast as they can. Plus, a forceful president has staked his legacy and reputation on expanding U.S. manufacturing capacity and winning the AI race.

Given the extreme urgency behind Big Tech’s data center buildout and Trump’s manufacturing push, the bidding process for many infrastructure projects now consists of construction companies throwing out absurdly high bids… then Big Tech or the White House replying, “Sure, we’ll take five of them. Can you start yesterday?”

A multi-year factory and data center building boom will greatly benefit construction equipment rental firms like United and Sunbelt. These two rent out all kinds of construction equipment, like forklifts, skid loaders, scissor lifts, pumps, generators, and excavators, to construction firms large and small.

In many cases, construction companies don’t want to tie up capital and storage space by owning lots of equipment… so they are repeat customers of United and Sunbelt.

As factory and data center building booms continue, expect a lot of money to flow into construction firms… which, in turn, will flow into construction equipment rental firms. United’s recent surge to an all-time high is proof this idea is a money maker.

Two inflation defense stock ideas you won’t hear about anywhere else

Credit: sabela66

The Made in America megatrend detailed above isn’t good for just construction equipment rental firms.

It’s also good for one of our top – and unique – inflation hedge ideas: Gravel pits.

Yes, gravel pits.

Over the past six months, I’ve written a special series of research notes on publicly traded assets such as timberland giant Weyerhaeuser (WY) and copper miner Southern Copper (SCCO) that can add a robust “inflation defense” component to your financial life.

You know why being vigilant against inflation is important: governments in most Western nations have promised far too many things to far too many people. They are spending far more on social programs, pensions, and wars than they collect in tax revenues.

The related debts and obligations governments have taken on cannot be paid back with sound money. They can only be paid back with debased, devalued money… much of which is created out of thin air. This is driving inflation and significant currency debasement. Prices are going up because the value of our money is going down.

Measured against a basket of widely used raw materials like crude oil, corn, silver, sugar, and soybeans, the U.S. dollar has lost 51% of its value over the past seven years.

When I provide guidance on inflation defense, I urge people to keep my number one rule in mind: own in-demand, useful assets that cannot be easily replaced or replicated.

That is inflation defense in a nutshell. You want to own businesses and properties that produce in-demand, scarce resources, products, experiences, and services.

This group of assets includes quality farmland, beachfront real estate, timberland, mountain-view properties, great businesses, and oil and gas pipelines.

When a very difficult or impossible-to-replicate business or property produces in-demand, scarce resources, products, experiences, or services, it tends to hold its value no matter what the dollar is doing.

Its price will constantly “recalibrate” to accommodate an increase in currency units. It’s like the difference between slicing a pizza into 6 or 8 pieces. The number of slices changed, but the amount of pizza is the same.

With this framework in mind, let’s talk about why gravel pits are a compelling “inflation defense” investment vehicle.

When the subject of inflation defense comes up, many people immediately think of gold, the shiny yellow rock we’ve valued as real money for thousands of years. However, owning lots of dull, white rocks can be a great idea as well. Specifically, owning them through America’s two largest construction aggregate firms, Vulcan Materials (VMC) and Martin Marietta Materials (MLM).

Together, Vulcan and Martin Marietta own and operate hundreds of mines across America that produce gravel, sand, and crushed stone – aka “construction aggregates.” These raw materials are literally the foundation of highways, bridges, airports, offices, apartments, homes, and factories. You are virtually guaranteed to have driven on a road made possible by the construction aggregates produced by Vulcan or MM. They are the giants of the industry.

Importantly, many of Vulcan and MM’s mines are in coveted locations near America’s major metropolitan areas. This is key because construction aggregates are very heavy and therefore costly to transport over long distances. Transporting $5 million worth of gold and transporting $5 million worth of gravel are two very different things.

Given how difficult, expensive, and time-consuming it can be to permit and develop a large gravel mine, we can say both VMC and MLM own irreplaceable collections of scarce, in-demand resources. Again, these attributes are key to playing inflation defense. They’ve allowed the market values of VMC and MLM to rise and outpace dollar debasement over the past seven years.

VMC and MLM are also enjoying the U.S. factory and AI data center building booms detailed above. As America’s manufacturing base and intelligence production grow, VMC and MLM grow with it.

Owning a collection of gravel pits and sand mines isn’t as exciting as owning SpaceX or AI stocks. However, if you want to play inflation defense by owning irreplaceable collections of scarce, in-demand assets whose prices can rise along with the rate of money creation, consider VMC and MLM.

Plus, when summer construction slows down your car trip, you can tell the family, “Well, at least we’re making some money from all this work.”

A booming industry that pays you huge yields to own it

Credit: stanley45

This week, investors fixated on fresh conflict in Iran, rising oil prices, and the latest round of earnings from big tech firms like Google (GOOG) and Tesla (TSLA). Plus, investors around the world are trying to figure out the complex dynamics of how cheap Chinese AI models will affect American AI giants OpenAI and Anthropic.

Meanwhile, America’s oil and gas pipelines are quietly staying busy… performing their “not complex” job of transporting vital oil and gas supplies from where they are extracted to where they are needed.

I again remind you that this is one of the world’s great and lucrative – yet “under the radar” – business and investment trends.

Avid M&M readers are familiar with our longstanding take on oil and gas pipelines. In early 2024, I saw the industry as the best way to generate substantial passive income from the AI boom. We’ve written over a dozen M&M updates about this trend.

As noted above, big tech firms Meta (META), Amazon (AMZN), and Microsoft (MSFT) are spending trillions of dollars to build the world’s best AI models and infrastructure. This year, they are on pace to spend over $700 billion on AI infrastructure, with more than $3 trillion expected to follow.

All that AI infrastructure is poised to consume vast amounts of electricity. S&P Global estimates that global electricity demand will increase by nearly 50% by 2040.

I’ve frequently mentioned that AI’s growing power demands are a bullish driver for natural gas, as it is the preferred clean-burning fuel for power plants that support AI data centers. This is why I believe natural gas producers such as EQT (EQT), Antero Resources (AR), Expand Energy Corp. (EXE), and Range Resources (RRC) are compelling long-term stock ideas.

However, all the natural gas in the world isn’t worth much if you can’t transport it to customers.

This is where America’s vast natural gas transportation, processing, and storage industry comes in. An extensive network of pipes crisscrosses America to allow energy companies to transport natural gas from the wellhead to the power plant. If we get an AI-driven boom in natural gas consumption, we get a boom in natural gas transportation by default.

This year, the market has enthusiastically supported our thesis. Blue chip pipeline operator Enterprise Products (EPD) has returned 25% this year. Fellow blue chip operator Kinder Morgan (KMI) has returned 22.5% this year. Fellow blue chip operator Energy Transfer (ET) has returned 28%.

These individual stock gains have driven the pipeline operator-focused Alerian MLP ETF (AMLP) to a 22.8% year-to-date gain.

As I expected, business conditions are so good for this sector that AMLP is one of the few widely traded ETFs to hit a new all-time high this week.

Despite AMLP’s big run and shares trading at all-time highs, it still yields around 7.3%.

The typical pipeline operator is not your conventional “high-risk, high-reward” AI play. Instead, it’s a boring, predictable business that generates steady cash flows and shareholder distributions. And it’s getting an AI boost that will last for years.

Generating stable cash flows by transporting oil and gas isn’t as exciting as some high-tech industries, but it just works… and business is booming.

Market Notes

• Railroad equipment and services giant Wabtec (WAB) reached a new all-time high today. This is a bullish economic signal.

• The Boomer health care theme continues to generate big stock market winners. Senior care giants Ventas (VTR) and Welltower (WELL) reached new all-time highs today.

• Giant power and transportation infrastructure firm Brookfield Infrastructure Partners (BIP) reached a new all-time high today.

• Data center giant Digital Realty (DLR) reached a new all-time high today after reporting excellent business results and strong data center demand.

Regards,

Brian Hunt
Editor, Money & Megatrends

An urgent message from our colleagues:

An Urgent Warning for All U.S. Investors: “Will You Be On The Right Side Of the Great AI Divide?”

Legendary investment strategist from America’s oldest and largest private investment research club bought (split-adjusted) Apple at $1… Netflix at $1.62… Amazon under $2. Now he’s speaking out about 3 AI super-cycle stocks that could dominate the markets.

Get the full story here.