The AI infrastructure boom is pouring billions into data centers and chips, but the economics are shifting. Companies are racing to build capacity, much like the telecom industry during the dot-com era. Companies like Global Crossing, 360Networks, Williams Communications, and WorldCom raised and spent billions laying fiber-optic cable, assuming bandwidth scarcity would sustain high returns.
History shows that when such booms slow down, a specific group thrives: the appliers. These companies don’t build infrastructure. They wait for it to become cheap and ubiquitous, then capitalize by applying it to their businesses.
AI Appliers: The Next Wave
During the dot-com boom, telecom companies spent nearly $1 trillion laying 80 million miles of fiber-optic cable. But after the bust, companies like Humana Inc. and Indian Hotels Co. Ltd. thrived by leveraging this infrastructure. Less than a year after the dot-com bust started, Humana’s stock doubled, eventually soaring 1,000% in eight years and over 5,000% long-term. Sierra Health Services, applying similar logic, climbed 10-fold in just five years, while many tech stocks were still down 50% or more.
Humana digitized its paper claims and records, speeding up processes. Indian Hotels wired a global booking system, boosting its annual net income from $5 million to $70 million in five years, with its stock jumping 1,000%. These companies didn’t build the internet; they applied it. The pattern is clear: during the boom, applier stocks are often overlooked. Only when the bust arrives do they gain attention and reward investors.
Early Adopters in Focus
Pharmaceutical and medical-technology sectors are early adopters of AI. They’re poised for breakthroughs using infrastructure built by companies like Oracle Corp. and Microsoft Corp., which are borrowing hundreds of billions to expand capacity. These sectors are leveraging AI to streamline drug discovery, reduce costs, and accelerate time-to-market, much like Humana and Indian Hotels did with the internet.
Pharma companies don’t need to own data centers. They just need AI compute to become cheap enough for large-scale drug discovery. This growing group of AI appliers spans multiple industries, and investors who recognize this shift early stand to benefit.
AI’s Role in Healthcare Advancements
The pharmaceutical and medical-technology sectors lead in AI adoption, utilizing infrastructure from tech giants. These industries anticipate significant progress in drug discovery and development as AI compute power becomes more affordable and accessible.
Adjusting Investment Approaches
Investors should gradually refocus from infrastructure builders to AI appliers. This means shifting from companies constructing AI infrastructure to those effectively applying it. By identifying businesses that can enhance profitability as technology costs decrease, investors can position themselves for potential gains. The key is to look for companies with clear strategies to leverage AI, not just those building the technology itself.
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