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Forget LLMs: Buy these 3 AI "Pick and Shovel" Plays Instead
Key Takeaways
AI infrastructure plays are far easier to predict than LLM stocks.
Most quality AI infrastructure stocks enjoy relationships with Nvidia, the AI leader.
As the AI race accelerates, fortunes will be made in these 3 AI stocks.
Big Tech Companies Jockey for LLM Supremacy
By now, Wall Street investors are well aware of the race for artificial intelligence supremacy among America’s most decorated big tech companies. In late 2022, the AI race jumpstarted when OpenAI (which partnered with Microsoft ((MSFT - Free Report) )) released ChatGPT. Within months, the ChatGPT large language model (LLM) became the fastest-growing consumer application in history, surpassing the leaders of the internet boom. However, after OpenAI started with a commanding lead, other big tech companies like Alphabet ((GOOGL - Free Report) ) (Gemini) have optimized their platforms, invested billions in CAPEX, and are playing catc-hup. How will the cutthroat AI LLM race end?
Like the internet mania of the late 1990s, the ultimate LLM leaders will be difficult to predict. For instance, Yahoo! was once the dominant internet search provider until Google came along. Netscape Navigator dominated the web browser domain before Microsoft’s Internet Explorer surpassed it.
AI: Why You Should Buy the “Picks and Shovels” Stocks
Although picking the ultimate leader in the LLM race will be undoubtedly lucrative for investors, it is not necessary in order to cash in on the AI revolution. Instead, investors can vie for the “pick and shovels” plays. Remember, during the California Gold Rush of the mid-19th century, the merchants who sold the picks, shovels, and jeans to gold miners often made more money and more consistent profits than the miners themselves.
3 AI “Pick and Shovel” Stocks to Buy Now
CoreWeave: A Bet on the Insatiable Demand for Compute
CoreWeave ((CRWV - Free Report) ) is a specialized cloud computing provider that delivers massive amounts of computing power to clientse through high-end graphics processing units (GPUs). Unlike traditional cloud services like Amazon ((AMZN - Free Report) ) Web Services (AWS), CRWV is an AI pure play because of its hyperfocus on meeting the needs of complex AI computing needed to train large language models. The company builds infrastructure and rents GPUs to deep-pocketed big tech companies such as IBM ((IBM - Free Report) ) and Microsoft. Additionally, CoreWeave enjoys a close relationship with Nvidia ((NVDA - Free Report) ), which allows it to acquire the most coveted and in-demand GPUs.
CoreWeave was arguably the most exciting IPO of last year after ripping from ~$40 to $180 in a near-straight line. However, since then, shares have tumbled to ~$90 today for two primary reasons:
1. Debt Concerns: Over the past several months,CRWV shares fell from their highs as debt concerns spooked investors. Building data centers requires significant CAPEX spending coupled and entails delayed revenue generation.
2. Lock Up Expiry & Institutional Seller: Another headwind for CRWV shares has been the IPO lock-up expiry, which occurred in August. Supply flooded the market as numerous insiders with massive profits finally sold shares (who can blame them?). Meanwhile, Magnetar Financial, which provided CoreWeave with a $50 million loan in 2021 (that evolved into a massive equity stake), took chips off the table (though they still hold a significant number of shares).
CoreWeave’s Debt Issues are Overblown
Today, each of these concerns has been quelled to a large extent. In Q3, CoreWeave secured a $2.6 billion secured debt financing facility. Meanwhile, the company has $25 billion in capital commitments from Morgan Stanley ((MS - Free Report) ) and others to support “unprecedented demand.” In other words, CRWV’s debt is not due to bad business but instead a timing issue.
Image Source: Zacks Investment Research
IPO Lock Up & Magnetar Sales
With the IPO lockup period several months in the past, insider selling of CRWV shares is likely to subside. Meanwhile, although Magnetar Financial remains a top CRWV stakeholder, the company is highly unlikely to sell its entire stake as Magnetar executives have described CoreWeave as the “gold standard” in AI infrastructure.
Nebius Group: An AI Infrastructure Leader
Nebius Group ((NBIS - Free Report) ) is a leading artificial intelligence infrastructure company. The Netherlands-based company’s core business is Nebius, an AI-centric cloud platform built for intensive AI workloads. Nebius builds full-stack infrastructure for AI, including large-scale GPU clusters, cloud platforms and tools, and developer services.
Nebius’ two main businesses are:
· AI Infrastructure: Mega-cap tech companies like META, MSFT, & GOOGL are investing hundreds of billions of dollars in data centers to train and optimize their large language models. With so much capital at stake, they cannot build data centers fast enough and are reliant on companies like Nebius.
· AI Cloud Services: Nebius also offers its AI infrastructure as a service, allowing big tech companies to gain access to resources at a lower cost.
What Sets Nebius Apart from Its Competitors?
What separates NBIS from most competitors is its vertical integration, meaning it provides its own proprietary AI software and hardware, including servers and racks.
Image Source: Zacks Investment Research
Nvidia Partnership is a Competitive Advantage for Nebius
Like CoreWeave, NBIS has secured a tight relationship with Nvidia. Simply put, if you want to run the best AI models, you need Nvidia’s GPUs. With demand soaring for NVDA GPUs, many companies do not need to wait for Nvidia’s in-demand top-of-the-line technology. Not Nebius. Nvidia is both a partner and investor in Nebius. Through the agreement, Nebius enjoys priority access to Nvidia’s latest and most powerful GPUs. Meanwhile, according to the latest filings, Nvidia owns roughly ~$700 million in NBIS shares, meaning it has meaningful “skin in the game.”
Microsoft Deal is a Game-Changer for NBIS
On September 9th, Nebius landed a massive multi-year deal with Microsoft. In a contract worth a whopping $17.4 billion (with potential to reach $19.4B), Nebius will provide Microsoft with access to its Vineland, New Jersey data center, and the valuable GPUs within it.
NBIS/MSFT Deal in Perspective
The significance of the Microsoft deal for Nebius cannot be understated. In fact, on September 8th, Nebius’ market cap was $15.29 billion. Overnight, the company received a contract worth more than its market cap! Zacks Consensus Estimates now suggest multi-triple-digit revenue growth for the foreseeable future.
Image Source: Zacks Investment Research
The price and volume action suggest that, after digesting the massive Microsoft deal news for three months, the stock is poised to continue its uptrend. Technically, NBIS shares are forming the right side of a giant base, and have pierced the 50-day moving average, signaling a bullish trend change.
Image Source: TradingView
Astera Labs: The AI “Nervous System”
What Does Astera Labs Do?
Astera Labs ((ALAB - Free Report) ) manufactures high-performance semiconductors and software designed for data centers and artificial intelligence applications. Today, AI data centers are filled with large clusters of Nvidia GPUs that must transmit gargantuan amounts of data quickly and reliably. However, the massive quantity of data transmission can lead to bottlenecks. Astera Labs creates specialized solutions to help alleviate these bottlenecks, allowing AI data centers to run seamlessly.
ALAB Boasts Strong Partnerships with AI Leaders
Like the two previously mentioned plays, ALAB has strong ties to industry leaders. Although a plethora of companies seek to capitalize on the AI revolution, only a select few are responsible for the foundational data infrastructure. These companies include Nvidia, Intel ((INTC - Free Report) ), and Advanced Micro Devices ((AMD - Free Report) ). Before going public in March, ALAB disclosed that the company has “trusted relationships with these industry juggernauts.
ALAB: Explosive Top & Bottom-Line Growth
As the AI buildout snowballs and becomes more competitive, Wall Street analysts expect Astera Labs to benefit. Zacks Consensus Analyst Estimates predict that ALAB will grow top-and-bottom-line growth at a double-digit pace through 2026.
Image Source: Zacks Investment Research
ALAB: Consistently Beating Wall Street Expectations
Wall Street is a game of expectations, and Astera Labs has shown the ability to exceed them. Although Wall Street analysts have become increasingly bullish on the stock, they continue to underestimate it. In fact, ALAB has eclipsed Zacks Consensus Estimates in each quarter since it went public in 2024. Meanwhile, over the past four quarters, ALAB has beaten Wall Street estimates by a juicy 29.79% margin.
Image Source: Zacks Investment Research
Bottom Line
During the proverbial (and actual) gold rush, the most consistent fortunes are made by those selling the “picks and shovels.” While the “LLM Wars” between tech giants continue to dominate headlines, the real staying power and predictability lie in the AI infrastructure stocks.
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Forget LLMs: Buy these 3 AI "Pick and Shovel" Plays Instead
Key Takeaways
Big Tech Companies Jockey for LLM Supremacy
By now, Wall Street investors are well aware of the race for artificial intelligence supremacy among America’s most decorated big tech companies. In late 2022, the AI race jumpstarted when OpenAI (which partnered with Microsoft ((MSFT - Free Report) )) released ChatGPT. Within months, the ChatGPT large language model (LLM) became the fastest-growing consumer application in history, surpassing the leaders of the internet boom. However, after OpenAI started with a commanding lead, other big tech companies like Alphabet ((GOOGL - Free Report) ) (Gemini) have optimized their platforms, invested billions in CAPEX, and are playing catc-hup. How will the cutthroat AI LLM race end?
Like the internet mania of the late 1990s, the ultimate LLM leaders will be difficult to predict. For instance, Yahoo! was once the dominant internet search provider until Google came along. Netscape Navigator dominated the web browser domain before Microsoft’s Internet Explorer surpassed it.
AI: Why You Should Buy the “Picks and Shovels” Stocks
Although picking the ultimate leader in the LLM race will be undoubtedly lucrative for investors, it is not necessary in order to cash in on the AI revolution. Instead, investors can vie for the “pick and shovels” plays. Remember, during the California Gold Rush of the mid-19th century, the merchants who sold the picks, shovels, and jeans to gold miners often made more money and more consistent profits than the miners themselves.
3 AI “Pick and Shovel” Stocks to Buy Now
CoreWeave: A Bet on the Insatiable Demand for Compute
CoreWeave ((CRWV - Free Report) ) is a specialized cloud computing provider that delivers massive amounts of computing power to clientse through high-end graphics processing units (GPUs). Unlike traditional cloud services like Amazon ((AMZN - Free Report) ) Web Services (AWS), CRWV is an AI pure play because of its hyperfocus on meeting the needs of complex AI computing needed to train large language models. The company builds infrastructure and rents GPUs to deep-pocketed big tech companies such as IBM ((IBM - Free Report) ) and Microsoft. Additionally, CoreWeave enjoys a close relationship with Nvidia ((NVDA - Free Report) ), which allows it to acquire the most coveted and in-demand GPUs.
CoreWeave was arguably the most exciting IPO of last year after ripping from ~$40 to $180 in a near-straight line. However, since then, shares have tumbled to ~$90 today for two primary reasons:
1. Debt Concerns: Over the past several months,CRWV shares fell from their highs as debt concerns spooked investors. Building data centers requires significant CAPEX spending coupled and entails delayed revenue generation.
2. Lock Up Expiry & Institutional Seller: Another headwind for CRWV shares has been the IPO lock-up expiry, which occurred in August. Supply flooded the market as numerous insiders with massive profits finally sold shares (who can blame them?). Meanwhile, Magnetar Financial, which provided CoreWeave with a $50 million loan in 2021 (that evolved into a massive equity stake), took chips off the table (though they still hold a significant number of shares).
CoreWeave’s Debt Issues are Overblown
Today, each of these concerns has been quelled to a large extent. In Q3, CoreWeave secured a $2.6 billion secured debt financing facility. Meanwhile, the company has $25 billion in capital commitments from Morgan Stanley ((MS - Free Report) ) and others to support “unprecedented demand.” In other words, CRWV’s debt is not due to bad business but instead a timing issue.
Image Source: Zacks Investment Research
IPO Lock Up & Magnetar Sales
With the IPO lockup period several months in the past, insider selling of CRWV shares is likely to subside. Meanwhile, although Magnetar Financial remains a top CRWV stakeholder, the company is highly unlikely to sell its entire stake as Magnetar executives have described CoreWeave as the “gold standard” in AI infrastructure.
Nebius Group: An AI Infrastructure Leader
Nebius Group ((NBIS - Free Report) ) is a leading artificial intelligence infrastructure company. The Netherlands-based company’s core business is Nebius, an AI-centric cloud platform built for intensive AI workloads. Nebius builds full-stack infrastructure for AI, including large-scale GPU clusters, cloud platforms and tools, and developer services.
Nebius’ two main businesses are:
· AI Infrastructure: Mega-cap tech companies like META, MSFT, & GOOGL are investing hundreds of billions of dollars in data centers to train and optimize their large language models. With so much capital at stake, they cannot build data centers fast enough and are reliant on companies like Nebius.
· AI Cloud Services: Nebius also offers its AI infrastructure as a service, allowing big tech companies to gain access to resources at a lower cost.
What Sets Nebius Apart from Its Competitors?
What separates NBIS from most competitors is its vertical integration, meaning it provides its own proprietary AI software and hardware, including servers and racks.
Image Source: Zacks Investment Research
Nvidia Partnership is a Competitive Advantage for Nebius
Like CoreWeave, NBIS has secured a tight relationship with Nvidia. Simply put, if you want to run the best AI models, you need Nvidia’s GPUs. With demand soaring for NVDA GPUs, many companies do not need to wait for Nvidia’s in-demand top-of-the-line technology. Not Nebius. Nvidia is both a partner and investor in Nebius. Through the agreement, Nebius enjoys priority access to Nvidia’s latest and most powerful GPUs. Meanwhile, according to the latest filings, Nvidia owns roughly ~$700 million in NBIS shares, meaning it has meaningful “skin in the game.”
Microsoft Deal is a Game-Changer for NBIS
On September 9th, Nebius landed a massive multi-year deal with Microsoft. In a contract worth a whopping $17.4 billion (with potential to reach $19.4B), Nebius will provide Microsoft with access to its Vineland, New Jersey data center, and the valuable GPUs within it.
NBIS/MSFT Deal in Perspective
The significance of the Microsoft deal for Nebius cannot be understated. In fact, on September 8th, Nebius’ market cap was $15.29 billion. Overnight, the company received a contract worth more than its market cap! Zacks Consensus Estimates now suggest multi-triple-digit revenue growth for the foreseeable future.
Image Source: Zacks Investment Research
The price and volume action suggest that, after digesting the massive Microsoft deal news for three months, the stock is poised to continue its uptrend. Technically, NBIS shares are forming the right side of a giant base, and have pierced the 50-day moving average, signaling a bullish trend change.
Image Source: TradingView
Astera Labs: The AI “Nervous System”
What Does Astera Labs Do?
Astera Labs ((ALAB - Free Report) ) manufactures high-performance semiconductors and software designed for data centers and artificial intelligence applications. Today, AI data centers are filled with large clusters of Nvidia GPUs that must transmit gargantuan amounts of data quickly and reliably. However, the massive quantity of data transmission can lead to bottlenecks. Astera Labs creates specialized solutions to help alleviate these bottlenecks, allowing AI data centers to run seamlessly.
ALAB Boasts Strong Partnerships with AI Leaders
Like the two previously mentioned plays, ALAB has strong ties to industry leaders. Although a plethora of companies seek to capitalize on the AI revolution, only a select few are responsible for the foundational data infrastructure. These companies include Nvidia, Intel ((INTC - Free Report) ), and Advanced Micro Devices ((AMD - Free Report) ). Before going public in March, ALAB disclosed that the company has “trusted relationships with these industry juggernauts.
ALAB: Explosive Top & Bottom-Line Growth
As the AI buildout snowballs and becomes more competitive, Wall Street analysts expect Astera Labs to benefit. Zacks Consensus Analyst Estimates predict that ALAB will grow top-and-bottom-line growth at a double-digit pace through 2026.
Image Source: Zacks Investment Research
ALAB: Consistently Beating Wall Street Expectations
Wall Street is a game of expectations, and Astera Labs has shown the ability to exceed them. Although Wall Street analysts have become increasingly bullish on the stock, they continue to underestimate it. In fact, ALAB has eclipsed Zacks Consensus Estimates in each quarter since it went public in 2024. Meanwhile, over the past four quarters, ALAB has beaten Wall Street estimates by a juicy 29.79% margin.
Image Source: Zacks Investment Research
Bottom Line
During the proverbial (and actual) gold rush, the most consistent fortunes are made by those selling the “picks and shovels.” While the “LLM Wars” between tech giants continue to dominate headlines, the real staying power and predictability lie in the AI infrastructure stocks.