For investors trying to play a gold rush, it’s important to look at who sells the picks and shovels to miners.
In the case of Nvidia’s dominance in supplying GPUs to run large language models and power generative AI, the company’s customers — hyperscalers and cloud- service providers like Amazon.com Inc. AMZN, +1.81%, Microsoft Corp. MSFT, +1.23% and Alphabet’s Inc.’s GOOG, +1.80% GOOGL, +1.80% Google — need twice the power of traditional CPUs.
BofA said pick-and-shovel companies expected to get a bump include buy-rated Eaton Corp. ETN, +1.23%, which generates about 9% of its revenue from data centers and about another 5% from distributed IT, and underperform-rated Vertiv Corp. VRTV, -0.01%, which gets about 70% of its revenue from data centers.
Also, with generative AI services expected to keep growing as Microsoft incorporates the technology into its products, demand for cloud services should increase as Adobe Inc. ADBE, +3.23%, Meta Platforms Inc. META, +1.86% and other companies add generative AI features.