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Editor’s Note: Last week, Luke Lango highlighted a pressing issue in AI investing: with a multitude of choices available, determining which stocks are worth your investment is a challenge. Today, Eric Fry provides an alternative viewpoint.

As demand for computing power escalates alongside the challenges of establishing new data centers, Eric explains how opportunities lie within companies supplying the essential infrastructure that AI requires for continued growth.

This perspective was instrumental in reshaping our revamped AI Revolution Portfolio. Together with Eric and Luke, we've distilled an extensive list of over 200 potential stocks down to around 20 that genuinely stand out in the current market.

Join us tomorrow at 10 a.m. Eastern, as we'll unveil our strategy for the next phase of this AI boom. Reserve your spot here.

For now, here’s Eric shedding light on the next wave of opportunities emerging in the AI sector…

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Hello, Reader.

In 1989, the film Field of Dreams popularized the quote, “If you build it, they will come.” However, the dynamics of the AI industry suggest a different narrative:

“If you build it, expect community backlash. But if it’s already built, they might just arrive.”

Here, "it" refers to data centers. As the AI sector accelerates its data center construction, there's been a notable rise in community resistance against new developments.

On July 18 alone, a remarkable 142 protests erupted across 42 states as part of a nationwide initiative against the aggressive expansion of AI data centers. Moreover, reports from Data Center Watch indicate that at least 75 data center projects in the U.S., valued at approximately $130 billion, faced setbacks or cancellations in just the first quarter of this year.

Simultaneously, AI's demand for computing power continues to skyrocket, creating pressure on a supply system that simply cannot keep pace. The intersection of these high demands against constrained supply sets the stage for a burgeoning investment landscape.

As it becomes increasingly difficult to expand capacity, the existing sites gain unprecedented value. Companies that possess established land, power, and infrastructure pertinent to data centers find themselves in possession of prime assets – both metaphorically and literally.

This week, a landmark deal between Anthropic, an influential AI player, and an unforeseen partner in the infrastructure space highlights the potential of this newfound value.

Anthropic Secures Established Capacity

In a significant move, Anthropic has reportedly finalized a 20-year agreement worth $9.1 billion with Riot Platforms, Inc. (RIOT) for access to 191 megawatts of data-center capacity at Riot's facility in Rockdale, Texas. Riot anticipates that this deal will yield approximately $9.1 billion through 2048, with contingencies that might inflate the total value to $16.1 billion. Deliveries under this agreement are slated to occur in phases from 2026 through 2028.

The transformative aspect of this deal is that Riot is leveraging pre-existing infrastructure. Although initially focused on bitcoin mining, Riot can pivot the use of its resources to cater to the burgeoning needs of AI firms such as Anthropic.

Add to this Riot's previous partnership with Advanced Micro Devices Inc. (AMD) for up to 200 MW of data-center capacity, and it becomes apparent that these strategies are evolving rapidly.

As computing power demands reach unprecedented heights and the construction of new data centers faces increased difficulty, facilities that boast existing resources stand to appreciate significantly in value, regardless of their original use.

The Anthropic and Riot arrangement underscores how eager AI companies are to secure readily available computing capacity. However, the obstacles associated with AI infrastructure extend beyond just data centers; they encompass a wide spectrum of power consumption, equipment sourcing, and material procurement.

The ramifications here are that AI's meteoric rise is sowing the seeds of investment prospects at multiple levels of the industry.

Exploring the Hierarchy of Investment Opportunities

Navigating this evolving landscape requires attention across various sectors; no single stock can encapsulate the entire investment picture. Consider the technology prerequisites:

Power generation – The colossal energy demands of AI data centers create pathways for energy producers to capitalize on this expanding market.

Grid infrastructure – Connectivity to the power grid is vital for data centers. Firms that provide transformers, substations, and transmission solutions are integral in making AI's expansion feasible.

Cooling solutions – As AI technologies generate remarkable amounts of heat, companies specializing in liquid cooling and HVAC systems are positioned to thrive in this operational landscape.

Construction and engineering – The physical establishment of data centers and power facilities is necessary, placing construction firms in a strategic position as this need grows.

Semiconductors – Firms such as Nvidia Corp. (NVDA) are fundamental for providing the chips powering these AI systems, marking semiconductors as a key component of this infrastructure boom.

Memory technology – AI systems require substantial memory resources, with manufacturers of DRAM and HBM playing a critical role in powering this expansion.

Overall, the AI Revolution is unveiling a myriad of investment avenues. Yet, as the technology permeates deeper into various sectors, discerning the standout companies from the less promising ones becomes increasingly challenging.

Discerning the Top Investments

With numerous opportunities emerging in the AI space, finding a suitable investment now demands more than just spotting AI-related stocks. The real challenge lies in distinguishing which businesses will truly deliver growth from those that won't.

This prompted my InvestorPlace colleagues Louis Navellier, Luke Lango, and myself to meticulously review our AI research and shortlist our findings into a refined selection, the AI Revolution Portfolio.

Originally introduced in 2023, this portfolio aims to concentrate on what we assess as best-in-class prospects within a vast pool of AI-related firms. By uniting our varying investment philosophies, we've curated a portfolio that spans multiple sectors of the AI ecosystem rather than relying on a single entity.

As we've adjusted our holdings during key moments in the AI evolution, there's significant value in ensuring the portfolio is aligned with changing realities. For example, in 2024, many AI developers hit a wall with brute-force enhancements, initiating a divide between adaptable firms and their less flexible counterparts. Recognizing this, we readjusted our AI Revolution Portfolio to secure our position with the more viable players.

Since that adjustment in December 2024, our portfolio has surged by 58% — a performance significantly outpacing the Nasdaq Composite's 25% and nearly tripling the Dow Jones Industrial Average's 19% gain.

As we navigate yet another inflection point in the AI sector, the current bottleneck signals wide-ranging opportunities spanning numerous industries.

We invite you to join us tomorrow, August 19, at 10 a.m. Eastern as we unveil our latest portfolio adjustments and provide clarity on how we plan to capture AI's next phase. Reserve your spot now.

In essence, our portfolio has evolved. All that's left is for you to be a part of it.

Join us now. We look forward to your participation.

Best regards,

Eric Fry

Editor, Smart Money