Australian fund managers are increasingly turning to a specific segment of smaller, so-called ‘picks-and-shovels’ companies on the ASX. This strategic shift is largely driven by Australia’s limited exposure to major artificial intelligence (AI) stocks, unlike Wall Street’s access to tech giants such as Nvidia and Microsoft. The local tech sector constitutes only about two per cent of the ASX by weighting, offering few large-cap options for direct AI investment.
This landscape has compelled fund managers to seek opportunities in firms building the infrastructure vital for AI’s expansion. James Barker, a portfolio manager at Ellerston Capital, highlighted companies like SKS Technologies, which provides electrical and communication services for large-scale digital infrastructure, and fellow electrical services firms Southern Cross Electrical Engineering and GenusPlus. These companies have seen order books swell due to surging demand for data centres and power infrastructure. While many of these stocks were previously underowned, their valuations have been boosted by the data centre boom, though recent weeks have seen some rotation out due to perceived overcrowding, leading to minor pullbacks for some since June 30.
Despite recent market movements, fund managers remain confident in the sustainability of the AI infrastructure trade. Jun Bei Liu, Ten Cap’s lead portfolio manager, notes that Australia is quietly becoming a crucial component in the global AI supply chain, providing essential land, power, and construction capabilities. Liu also points to the resources sector, particularly copper, as an underappreciated AI play. Copper is vital across the entire AI supply chain, from grid connections to cooling infrastructure, and faces significant supply constraints. Looking ahead, the ASX is set to see a wave of new tech listings, including data centre developer Firmus and AI infrastructure business SCX.ai, indicating a persistent investor appetite for AI-related opportunities on the local market.
