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Stop Buying AI. Start Buying This Instead.
Published 1 day ago • 6 min read
Here's your weekly helping of interesting investing information and insights.
Food For Thought
We just booked a flight to Florida, and when we searched, guess what we cared about? The price.
Airlines are a perfect example of what happens when most customers stop caring about brand and just go for the cheapest option.
Pulak Prasad nails this in his great book What I Learned About Investing from Darwin. He talks about what happens to industries where customers stop caring about brand and just chase the lowest price — think garment manufacturing and commodity chemicals. Prices race to the bottom and most companies in these industries barely earn their cost of capital and end up destroying value.
Great for consumers, not so much for investors.
We might be watching this happen in real time with AI.
Right now there's a genuine race to see who can offer the best AI model at the cheapest price. DeepSeek rattled the industry earlier this year by slashing its inference pricing by 75%.
Inference, by the way, is the part of AI that actually talks to you — when you ask for dinner ideas for your picky seventh grader and it spits something out. Training is when they teach the AI. Inference is when the AI does its job.
And yes, I used the inference side of AI to help me write this newsletter. Claude specifically, which I pay $20 a month for because I use it daily. But I also use the free versions of Gemini, ChatGPT, and Grok. And if one of them starts giving me 80% of the value for half the price? I'm switching and I think most people will. Just like they switch airlines.
That's great for us as consumers. It's potentially a nightmare for investors in the AI platforms themselves.
Prasad also talks about investors falling in love with giant TAMs — total addressable markets. Meaning, "there are four billion potential AI customers!" Sounds incredible. But a massive TAM says nothing about profitability. The Tucker and DeLorean car companies had enormous potential markets too. Ask those companies what they think of a massive TAM!
So if investing directly in Anthropic, OpenAI, or the AI software race feels risky to you, there's a smarter angle. Think about the Gold Rush of 1849. The people who reliably got rich weren't the miners. They were the ones selling the picks and shovels.
What are AI's picks and shovels?
The chips that run it. The memory that feeds it. The data centers that house it. The power that keeps it running.
Whether ChatGPT wins or Gemini wins or some AI we haven't heard of yet wins — they all run on the same physical stuff. And the companies making that stuff are seeing demand explode. The biggest cloud companies — Microsoft, Google, Amazon, Meta — are expected to spend around $725 billion on infrastructure in 2026 alone. That's up 77% from last year's already insane number.
That money flows somewhere. And it flows to companies like NVIDIA (NVDA), which controls somewhere around 80% of the AI chip market.
It flows to Micron (MU), the only U.S. company that makes the special high-speed memory AI chips need.
It flows to Arista Networks (ANET), which makes the networking equipment connecting thousands of chips together inside a data center.
It flows to Eaton (ETN) and Vertiv (VRT), which make the power and cooling systems that keep those buildings alive.
And it flows to Constellation Energy (CEG), which is signing 20-year nuclear power deals with companies like Meta because data centers are absolutely starving for electricity.
If you want a no-homework, diversified approach, there are ETFs that package this theme up nicely.
VanEck Semiconductor ETF (SMH) and iShares Semiconductor ETF (SOXX) are semiconductor-focused.
Global X Data Center & Digital Infrastructure ETF (DTCR) holds data center REITs like Equinix and Digital Realty.
First Trust NASDAQ Clean Edge Smart Grid ETF (GRID) captures the power infrastructure angle. These let you ride the wave without betting on one company.
But — and this is important — do your homework before you buy anything. As Jim Cramer likes to say, it's "buy and homework," not just buy and blindly hold. (Though sometimes blindly holding works out beautifully too!)
Nobody knows exactly how this plays out, and some of these stocks have already run up a lot. High-quality companies can still be bad investments if you overpay.
There's also a bigger philosophical question worth sitting with. The internet changed everything. But once every company had the internet, nobody had an advantage from the internet. It just became the baseline. Like electricity.
Will AI do the same thing? When FedEx, UPS, Amazon, and the USPS all have AI — when PepsiCo and Kraft and every other company is using it to streamline operations — does anyone actually have an edge? Or does it just raise the floor for everyone?
My honest take? The best-run companies will stay the best-run. AI might help some others close the gap a little. But the moat will still belong to the businesses with real pricing power, real brand loyalty, and real competitive advantages.
It's an evolving story that nobody knows how it ends. And that's the fun part.
I'd love to know what you think. Are AI models heading toward commodity status — like gas or airline seats? Or do you think one model will eventually win enough loyalty to have real pricing power? And which companies or ETFs do you think are best positioned for what's coming?
Brian B. at Simply Safe Dividends checks up on a "high yield" dividend portfolio from 2024 and then goes into Building a $1M Dividend Portfolio Targeting 5% Yield and Smooth Monthly Income...
Wanna know why one legendary investor favors share buybacks over dividends—and hear the incredible story of how he stumbled into buying Berkshire Hathaway at just $700 a share—this episode is a must-listen.
Disclaimer: This is not investment advice. Do your own research before making any investment decisions.
😁THANK YOU to all who responded to the last newsletter!!
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Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
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