BlackRock’s Pick-and-Shovel Play: Betting on Data Centers, Chips and Power as AI Spending Surges

NEW YORK — BlackRock has repositioned its capital across public and private markets to capture the industrial phase of the artificial intelligence buildout, prioritizing firms that supply computing power, networking, and energy rather than the headline-making model owners themselves. The firm’s multi-asset playbook angles toward pick-and-shovel beneficiaries - data center operators, semiconductor equipment manufacturers, power and grid infrastructure, and cloud-service enablers - arguing these will produce steadier cash flows and lower binary risk as AI scales. That shift reflects both a strategic adjustment and a market signal: where hyperscalers spend at scale, long-lived suppliers tend to generate persistent returns.

Why the pick-and-shovel trade matters now

BlackRock’s shift reflects a broader market judgement: AI is moving from an innovation phase into a capital-intensive deployment phase that requires physical assets, long-term contracts, and specialized services. The economics of that transition favor suppliers with durable contracts, capacity advantages, or regulatory protection. For investors who prefer predictable cash flows and less exposure to platform concentration, owning the supply chain can offer a clearer valuation pathway than backing single-software winners whose fortunes depend on model adoption and network effects.

Institutional capital also affects the tempo of the buildout. When large asset managers commit equity, credit, and project finance, they reduce financing friction for projects that require multibillion-dollar commitments. That capital can accelerate timelines, lock in long-term pricing, and change bargaining power across the chain, shifting returns from short-term speculative upside to longer-term contractual margins. For allocators focused on risk-adjusted returns, the pick-and-shovel trade therefore becomes both a defensive and offensive allocation.

How BlackRock is deploying capital across the value chain

BlackRock is executing the pick-and-shovel theme across listed equities, private infrastructure, and credit. Public equity sleeves emphasize chipmakers, cloud-service suppliers and industrial firms that produce components for hyperscaler builds; those listed positions give investors liquidity and a route to participate in secular growth. In private markets, the firm’s infrastructure platforms pursue large-scale data-center assets and power contracts that can be leased back under long-term agreements, providing cash yields and inflation linkage for long-term liabilities.

Credit strategies within the firm are also being repositioned to finance project work and corporate capex needs across the value chain. By underwriting project loans, leasing structures, and sponsor financing, credit desks aim to capture spread while limiting equity-like risk. Taken together, these layers offer a diversified exposure that can be rebalanced as hardware cycles and utilization diverge, preserving upside from capacity expansion while cushioning downside through contractual cash flows.

Market and corporate implications

The pick-and-shovel trade reshapes corporate strategy and market structure. Suppliers that secure long-term, take-or-pay contracts with hyperscalers gain predictable revenue and can invest in capacity with more confidence, which in turn raises barriers for smaller rivals. For hyperscalers and model owners, outsourcing increases capital efficiency and transfers buildout risk to specialized operators; that may accelerate deployment but also concentrates supply-chain influence among a smaller set of contractors and financiers.

For investors, that bifurcation creates differentiated return profiles. Infrastructure-like assets trade more like utilities or real assets, often with higher leverage and sensitivity to interest rates, while software and platform names retain higher revenue growth optionality but more volatile multiples. Active allocators should therefore weigh duration, financing costs, and counterparty risk when sizing exposure across the two buckets, because the macro backdrop and rate environment materially affect fair value for long-duration contracts.

Risks, policy friction and valuation traps

The pick-and-shovel approach is not a risk-free arbitrage. Buildout economics are sensitive to capital costs, permitting timelines, and energy availability; those variables can quickly change project returns. Crowding is another hazard: when multiple large managers back the same asset class, valuations can rerate and liquidity may be thin if sentiment reverses, creating sharp drawdowns for highly correlated holdings.

Political and regulatory actions add event risk that can affect ownership and operation of critical assets. Energy permitting, grid access and national security reviews of semiconductor supply chains are examples of policy levers that can delay projects or change allowed ownership structures. Investors must therefore analyze contract tenure, jurisdictional exposure, and the flexibility of offtake arrangements as central elements of due diligence.

Tactical takeaways for traders, allocators and creditors

Traders can express tactical views through relative-value trades across equipment suppliers, cloud providers and listed data-center operators, while hedging macro rate exposure that often drives valuation differentials in infrastructure-like names. Options and tranche structures may be useful to capture asymmetric upside in equipment makers while limiting downside in cyclical downturns, and event-driven trades can exploit dispersion between suppliers with different quality metrics.

Long-term allocators should consider a blended exposure that pairs growth allocations in high-conviction software names with stable, yield-oriented positions in infrastructure funds or project-backed credit. Credit investors need to emphasize contract terms: tenor, indexation, termination clauses and energy sourcing are the most consequential drivers of recovery value. Above all, balance-sheet resilience and proven project delivery track records separate durable winners from valuation traps.

Signals to watch and red flags

Investors should track three practical signals: contracted utilization rates at data centers, book-to-bill trends for semiconductor equipment makers, and long-term offtake agreements for large power suppliers. Rising contracted utilization and multi-year offtake contracts are strong indicators of sustainable cash flow, while falling utilization or elongated construction timelines can presage downward re-rates. For equipment manufacturers, a healthy book-to-bill indicates near-term demand that will translate into factory utilization and pricing power.

Red flags include one-off large orders without contract renewal visibility, customer concentration where a single hyperscaler accounts for most revenue, and projects dependent on unresolved permitting or grid upgrades. Another caution is financing structure: project financing with short maturities or weak covenant protections can leave equity holders exposed if macro conditions shift. Monitoring covenant strength, sponsor track records and the geographic diversity of deployments reduces idiosyncratic event risk.

In the near term, the pick-and-shovel trade will test investors' ability to marry industrial diligence with thematic conviction. For allocators who value steady cash flow and differentiated exposure to AI's physical footprint, the theme offers a pragmatic route to participate in the megatrend without overpaying for concentration risk. Execution, financing and policy will determine who emerges as clear winners.

Written by Nick Ravenshade for NENC Media Group, original article and analysis.
Sources: BlackRock, Reuters, Bloomberg, Stoxx, Financial Times.