AI boom is lifting industrial stocks
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Illustration: Shoshana Gordon/Axios
The data center boom is driving the earnings of staid industrial companies in addition to the makers of chips and servers.
Why it matters: The newfound importance of AI to producers of paint, asphalt and industrial cable, among others, mirrors the buildout's growing role as a driver of the "real economy."
The latest: Second-quarter GDP numbers released Thursday showed that investment in information-processing equipment and software contributed almost half a percentage point to the U.S. economy's 1.5% growth rate.
- That's down slightly from its enormous contributions last year, but still strong in light of what was typical in the years before the arrival of AI.
Between the lines: These numbers include investments in servers and chips, the costliest parts of a data center. But they don't capture the full scope of the AI boom, which also involves titanic amounts of spending on less sophisticated products.
Case in point: Paint maker Sherwin-Williams knocked earnings out of the park earlier this week, sending its stock up 8.3% on Tuesday — its biggest jump in over four years — despite continued weakness in U.S. housing, which usually drives its numbers.
- AI supercharged sales growth of the company's "protective and marine" coating products, which grew in the "mid-teens," the company said, far higher than its overall 7.5% sales growth during the quarter.
- "When we talk about AI data centers and the build-out, you think of the race of these hyperscalers," said Heidi Petz, Sherwin-Williams' CEO, adding that "speed matters, and we can provide speed. We can provide a comprehensive one-stop solution for many of their coatings needs."
Zoom out: Sherwin-Williams isn't alone.
- Wire and cable distributor WESCO International soared Thursday after trouncing expectations for sales and earnings. Sales at its data center solutions division jumped 45%.
- In its earnings call on Wednesday, the CEO of industrial coatings maker PPG told analysts "there's quite a pipeline in data center work which is not only fire protection, but structural steel flooring, insulated coatings [and] dielectric coatings."
- Shares of industrial conglomerate 3M — which makes hard hats, industrial adhesives and sandpaper, in addition to Post-it notes — notched their best gain of the year last week, after the company spotlighted that Microsoft was using its patented fiber optic cable connectors in its Azure data centers.
- Asphalt and aggregate companies Vulcan Materials and Martin Marietta Materials both spotlighted data center-related demand in their earnings results this week, with executives at Vulcan telling analysts that "large project opportunities continue to drive non-residential activity, particularly data centers."
The big picture: With the hyperscalers alone — Amazon, Alphabet, Meta, Microsoft and Oracle — expected to spend more than $750 billion on AI capex this year, there are plenty of profits to be had in the U.S. economy.
The bottom line: As AI becomes an important line of business outside the tech world, it means that more companies will enjoy some of the fruits of the spending frenzy.
- But it also means those companies — and the U.S. economy — will be more exposed to risks and volatility that could accompany the boom.
