Investing in What Makes It Work

 August 2026 Client Letter

Looking beneath the surface of artificial intelligence

Usually, when technology makes something obsolete, demand slowly disappears.

Mechanical watches seem to be an exception.

Smartphones tell time more accurately than even the finest Swiss watch. Most people glance at the time throughout the day without ever looking at their wrist. By all accounts, the traditional mechanical watch should have quietly faded away.

Yet it hasn’t.

I’ve been thinking about this because my sons have developed an interest in mechanical watches. They grew up with smartphones in their hands and have never needed a watch to tell time. If anyone should see a mechanical watch as outdated technology, it would be them.

I’ve collected mechanical watches for years, so I understand the appeal. What surprises me is seeing that same appreciation emerge in a generation that has never needed one.

That made me think: Why would someone who has never needed a mechanical watch want one? Some people appreciate the history. Others admire the craftsmanship, the engineering, or the timeless design.

Each watch has its own story, but beneath the surface, they all depend on the same thing: stored energy. Energy is stored in the mainspring and released, little by little, with precision. Without that stored energy, even the finest mechanical watch simply stops. The dial is what draws our attention. The movement is what makes it work.

Much of today’s conversation about artificial intelligence centers on models, advanced computer chips, and the companies developing them. Those innovations deserve attention. But like many complex systems, the most visible components are only part of the story.

Every advance depends on an entire network of supporting technologies that receives less attention but makes everything possible. Before AI can answer a question, summarize a report, or generate an image, first the lights must come on.

Like a mechanical watch, the modern AI economy ultimately depends on reliable power.

The Infrastructure Behind AI 

Most people experience artificial intelligence through software. From the user’s perspective, using AI often feels effortless.

But artificial intelligence does not run on code alone. It runs on electricity. Every AI request and every new model trained requires enormous computing power.

That computing power must be housed in data centers, connected through sophisticated networks, and supplied with dependable electricity around the clock.

The technology inside these facilities may be new. Much of what keeps them running is not.

Electricity must be generated. It travels across transmission lines, moves through substations and transformers, and arrives where it is needed. Once inside the data center, thousands of powerful computer chips produce tremendous heat and must be cooled continuously.

Just as the mainspring powers a mechanical watch, reliable electricity powers the AI ecosystem. Most users will never think about it, but every AI interaction ultimately depends on it.

Meeting this growing demand requires far more than simply producing additional electricity. It also requires substantial investment in the infrastructure that generates, transmits, distributes, and manages electricity.

Artificial intelligence is driving one of the largest infrastructure buildouts in decades. While much of the focus has been on the companies developing AI models, some of the more durable investment opportunities may lie with the businesses supplying the power and equipment that make these advances possible.

The Bottleneck Has Moved 

As artificial intelligence continues to expand, the challenge is no longer imagining what may be possible. It is building the physical foundations to support it.

There have been several bottlenecks in the development of artificial intelligence infrastructure, but now the bottleneck has shifted further down the production line—from the availability of basic materials to the ability to convert those materials into finished equipment and functioning infrastructure.

Having enough copper does not mean a utility can quickly install a new transformer.

Having enough steel does not mean a new substation can be built tomorrow.

Today, the growing challenge is turning those raw materials into the equipment needed to generate, control, and deliver safe and reliable electricity.

Utilities and data center developers are not simply purchasing raw materials. They need highly specialized electrical equipment along with the skilled workers required to manufacture, install, and maintain it. Expanding production capacity takes time, which helps explain why companies with deep experience in power infrastructure are seeing growing demand.

Many long-established industrial companies now find themselves near the center of today’s technological revolution. These businesses see growing demand from data centers and other power-intensive customers.

The Companies Behind the Buildout

By now, it should come as little surprise that our interest extends beyond the companies developing artificial intelligence itself. Their growth is creating demand for something tangible: the physical systems required to support them.

Investment opportunities may be found among the companies building the electrical and industrial foundations supporting artificial intelligence.

Utilities such as NextEra Energy and Southern Company are investing billions of dollars to expand power generation and strengthen the electrical grid.

But producing electricity is only the first step. That power must then be moved, controlled, and delivered safely. Companies such as Eaton and Emerson develop equipment and systems that distribute electricity, manage power flows, and help industrial facilities operate more efficiently.

Once electricity reaches a data center, the work is still not finished. Thousands of high-performance computer chips operate around the clock, producing enormous amounts of heat. That creates growing demand for companies such as Vertiv, which provides the cooling systems and power-management equipment needed to keep those facilities running reliably.

Energy producers also play an increasingly important role. In June, Chevron announced a 20-year agreement to supply electricity to a new Microsoft data center in West Texas. The agreement illustrates how utilities, energy companies, industrial manufacturers, and technology businesses—industries that once may have had relatively little interaction—are becoming increasingly connected.

No one knows with certainty which individual companies will benefit most over time. New competitors will emerge, technologies will evolve, and today’s leaders will inevitably face new challenges.

What is likely to prove more enduring is the need for reliable electricity and the infrastructure required to generate it, control it, and keep it available around the clock.

 Market Backdrop 

 The infrastructure required to support artificial intelligence is not built overnight. New power plants, transmission lines, substations, and data centers often require years of planning, permitting, and construction.

That long timeline is worth remembering because financial markets rarely move with the same patience.

Investor attention shifts constantly. Inflation remains part of the conversation. Interest rates influence borrowing costs. Geopolitical events and political headlines regularly capture the market’s focus. While those developments can create periods of uncertainty and volatility, the physical buildout supporting artificial intelligence continues to move forward.

Utilities are expanding power generation and strengthening the electrical grid. New data centers continue to be developed. Industrial companies are investing in automation, cooling systems, and power-management technologies. These projects are measured in years, not news cycles.

None of this suggests markets will advance without setbacks. Periods of volatility and investor pessimism have always been part of long-term investing.

One lesson we have learned through decades of investing is that durable trends may continue advancing even while markets become temporarily distracted by short-term events.

While the headlines may change from week to week the need for additional power generation, stronger electrical infrastructure, and greater computing capacity is unlikely to change.

That is one reason we continue focusing on businesses we believe are well positioned to participate in these developments while remaining mindful of valuation, risk, and the importance of diversification.

Bringing It Together

When I look at one of my mechanical watches today, I appreciate it differently than I once did.

Most people notice the dial. They admire the hands, the finish, and the craftsmanship. Few think about the stored energy being released through the movement inside the case.

Without it, the watch stops.

I have come to believe that investing often works much the same way.

Over time, we have found that some of the most durable investment opportunities can be found by looking beneath the surface. Rather than focusing only on the newest technology, we prefer to invest in established businesses providing the power, equipment, and systems that support long-term economic growth.

No one knows exactly how artificial intelligence will evolve over the next decade. New technologies will emerge. Today’s leaders may change. Markets will continue to move through periods of optimism, uncertainty, and disappointment.

What appears more durable is the continuing demand for reliable electricity and the companies helping generate it, control it, and use it efficiently. Whatever direction artificial intelligence ultimately takes, it will continue to depend on a physical foundation capable of supporting it.

Whether we are looking at a mechanical watch or the modern digital economy, the lesson is similar. We naturally focus on what captures our attention, but lasting systems often depend on something far less visible.

The most visible part of a system is not always the most important.

As always, we welcome the opportunity to discuss your specific financial situation. If you have questions or if anything in your financial life has changed, please call us at (800) 843-7273. We are always glad to have that conversation with you.

Warm Regards,

Matthew A. Young

President and Chief Executive Officer

 

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