Want AI? BofA says buy these 2 non-tech sectors

Investing.com -- Bank of America believes that investors looking to benefit from artificial intelligence should look beyond traditional tech plays and consider real estate and machinery instead.

In a note to clients, BofA strategist Savita Subramanian wrote, “Want AI? Buy real estate,” highlighting how data center REITs and industrial equipment makers could emerge as beneficiaries of AI’s growing infrastructure needs.

“AI capex shifted from Tech spend to structures spend (Datacenters),” Subramanian said, adding that “the laggard last year, core equipment spend, is likely to improve as data centers come online.”

Subramanian noted that long-only managers have already crowded into Utilities, viewed as “a power derivative of AI,” but noted that valuations are near record highs and guidance trends have worsened.

Utilities are now “the most O/W sector vs. its own history,” she wrote, cautioning that state-regulated utilities may face consumer backlash amid rising electricity costs.

By contrast, real estate and machinery stocks have been “shunned” despite being poised to benefit from the same AI-driven infrastructure cycle.

“Data Center REITs carry 13x the weight of Office REITs in the S&P 500, but the sector…should similarly benefit from the demand for capacity,” BofA said, noting the asset class is now “higher quality than during 2008–’15.”

The bank also sees opportunity in machinery stocks tied to construction and data center buildouts, describing them as another “derivative” of AI spending.

Subramanian concluded that as investors chase AI exposure, “real estate and machinery” offer a more reasonably valued way to capture the theme’s next leg of growth.

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