“Picks and shovels.” That’s the term used for companies that supply the hardware needed to support a boom. While it may have started with a gold rush, today’s picks and shovels are often the key pieces of hardware needed to run today’s software.
As the AI Boom continues to roll out, pick-and-shovel plays can continue to benefit. The hardware sellers may not make the biggest profit margins or even get the headlines. But they stand to win.
Specifically, they stand to make steady profits while other companies pop and then drop.
One pick-and-shovel play for the AI Boom is
Dell Technologies (DELL).
Besides making inexpensive personal computers, they’re benefitting from demand for their server mainframe hardware. These industrial-sized computers are perfect for running AI technology.
While shares soared to 52-week highs following great earnings, there’s likely more room to run in the months and even years ahead.
Action to take: Even with its big run over the past year, shares are inexpensive at 14 times forward earnings. Investors may want to buy a partial stake now, and use any market pullback to add to that position.
Dell also recently started a dividend, which pays about 1.5 percent.
For traders, the June $130 calls, last going for about $9.50, could see mid-double-digit returns or better in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.