RJ Hamster
The AI Stocks to Sell Immediately… and the Ones…
Eric Fry
Editor, Smart Money
DAILY ISSUE
The AI Stocks to Sell Immediately… and the Ones to Buy Instead
Tom Yeung here with today’s Smart Money.
There’s a tradition in my hometown of Boston that most Northerners will understand.
After every major snowstorm, household items will magically appear on the side of the street.
Plastic folding chairs… tables… ironing boards… even coolers of free beer will appear. And they’re all there to save the parking (i.e., paah-king) spaces of those who shoveled out a spot.
Take my beer, NOT my parking spot, please 🙂
In fact, Bostonians care so much about space savers that our longest-serving mayor, the widely popular Thomas Menino, protected them by law in 2005. If you spend hours shoveling out a parking spot, you’re legally entitled to save it with a household item of your choice.
Most other cities, however, don’t allow this practice. In Pittsburgh, the only thing stopping people from ignoring “parking chairs” is the local superstition surrounding their removal. And in Chicago, the “dibs” process is outright illegal.
The world of business works in the same dog-eat-dog way. Unless you have a patent or copyright on a product (and a lot of lawyers to enforce it), there’s nothing stopping a new company from taking your publicly available work and claiming it as their own.
Consider the internet boom of the late 1990s.
The winners of this technological revolution were not the firms that laid the physical infrastructure of the World Wide Web. Take Lucent, the world’s largest telecommunications equipment company in 1990s,which is barely remembered today. The AT&T spinoff poured $27 billion into its business between 1997 through 2000… and then lost $28 billion over the following two years after it turned out too much supply had been built.
Lucent shoveled the internet “parking spot”…
And everyone else claimed it.
The big winners of the internet era turned out to be firms like Amazon.com Inc. (AMZN) and Netflix Inc. ( NFLX) that ran on top of these networks. Even now, the world’s most valuable tech giants owe their success to an internet infrastructure they never paid for.
The same will be true for AI infrastructure companies.
So, in today’s Smart Money, I’ll share why the biggest spenders will not be the biggest winners. Instead, the winners will be companies weaving AI into their operations to boost efficiency, productivity, and profitability.
And I’ll show you where to find these plays…
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Sell This AI Sector Immediately…
AI data centers have the same problem as older technologies:
They are extremely expensive to build. And once they’re created, there’s no more magic.
At its core, AI computing is a service that’s mostly indistinguishable between providers. They all use the same Nvidia Corp. (NVDA) chips running on the same platform. So, choosing between providers usually comes down to price.
That’s why Eric warned his Fry’s Investment Report subscribers last November to sell shares of Oracle Corp. (ORCL) when prices were still in the $200 range. The AI data center company was planning to spend billions of dollars to build more AI infrastructure.
Existing long-term profit plans look as shaky as an ironing board on the side of a snowy
Chicago street.
Let me illustrate with an example.
Last September, Oracle signed a $300 billion cloud deal to provide 4.5 gigawatts of cloud computing power to OpenAI between 2027 and 2032.
We know that each data center gigawatt costs roughly $50 billion to build – $35 billion for Nvidia chips, and another $15 billion for everything else. This is something Nvidia CEO Jensen Huang confirmed with analysts.
That means Oracle will spend around $225 billion through 2027 ($50 billion × 4.5) to build these data centers to make $300 billion in revenue.
If all goes according to plan, the deal will earn Oracle $75 billion in profits (that’s $300 billion in revenue minus $225 billion in costs). Accountants will even allow Oracle to mark any remaining value of its data centers as profits, which I estimate will add another $70 billion to the bottom line.
So, that’s $145 billion in profits for $225 billion in investment over eight years.
But that’s if everything goes to plan.
Avoid the Impending Implosion
Let’s take an alternative approach: What if OpenAI fails to meet its end of the agreement?
Then what?
Suddenly, Oracle’s gamble will turn into a disaster. The data center firm will be forced to lower prices to attract replacement customers (because if OpenAI couldn’t pay $300 billion, who else would?) and profits will evaporate.
In the worst case, Oracle will sell its cloud computing at a loss to help fend off creditors. We could see share prices plummet into the low $100s or lower.
This isn’t a hypothetical concern.
What I’m describing is exactly what happened during the dot-com implosion.
When the bubble burst, internet startups couldn’t pay for the networking equipment they had ordered. That forced firms like Lucent to offer vendor financing (lending cash to customers) and slash prices. Even healthy customers began holding out for better prices, twisting the bladed snow shovel even deeper into these internet infrastructure firms.
Now, Oracle’s 50% drop since its 2025 peak reduces some of the downside risk. It even seems cheap if you plug some rosy numbers into a spreadsheet (like OpenAI sticking to its $300 billion agreement).
But there are plenty of other data center firms like Amazon, Equinix Inc. (EQIX), and Digital Realty Trust Inc. ( DLR) that have not yet faced a reckoning. These are the types of companies that make the entire AI infrastructure sector more of a “Sell” than a “Buy” today.
Meanwhile, there are plenty of promising companies that are ready to run on top ofAI infrastructure…
Buy Stocks in this AI Sector Instead
These are firms that never paid a red cent into data center construction… but will benefit from their computing power anyway.
These are what we call “AI Appliers.”
AI Appliers are quietly adopting AI technologies to boost efficiency, productivity, and profitability. Their ability to integrate AI into existing business models could enable them to significantly scale revenues and profit margins.
We introduced one of these AI Appliers here last week:
PayPal Holdings Inc. (PYPL).
PayPal applies AI to its core financial services. For instance, it has its own AI-powered fraud detection system that will only improve as more AI data centers are built.
The payments firm generates an enormous amount of training data from day-to-day usage (500 data points per transaction) and is already blocking $500 million in fraud every quarter. In 2024, Oracle reported that PayPal was using over 2,000 of its database servers to execute 1 million queries per second, or 1 trillion service calls a day. Cheaper and faster computing power from Oracle will only make PayPal even more effective at applying AI technologies.
Now, I must emphasize that not every AI Applier will succeed. Just because there’s a snow-cleared parking space doesn’t mean someone is quick enough to take it.
In fact, there’s often only room for one winner.
The key is knowing which AI Appliers will swoop in and benefit from existing infrastructure… and which will be left out in the cold.
Picking the Winners
Eric identifies AI Appliers as one of four distinct AI investment categories (the other three are Builders, Enablers, and Survivors).
And he’s been strategically adding winning AI Applier companies to his Fry’s Investment Report portfolio.
For example, one of Eric’s AI Applier healthcare picks has risen 30% in the past three months (blue line), even as shares of Oracle (white line) have plummeted over the last six months. You check out the chart below.
This company used AI to invent an entirely new drug, and the therapy is set to become a blockbuster in the coming years.
We see this as only the start.
At Fry’s Investment Report, Eric also recommends AI Appliers in logistics… robotics… even online dating that will benefit from the rise of cheap and prevalent AI computing power. These firms are waiting on the sidelines as firms like Amazon and Oracle put immense amounts of time and money into building data centers.
Eric will dive even deeper into this AI category in the February issue of Fry’s Investment Report, which he is publishing tomorrow. In this monthly issue, he will also spotlight a brand-new pick that he recently added to the portfolio.
Click here to learn how to join Fry’s Investment Report today.
And sure to keep an eye out in your inbox!
Regards,
Eric Fry
Editor, Smart Money
