The AI infrastructure investment discussion has been dominated by the most visible components of the value chain — Nvidia and the broader semiconductor ecosystem, the hyperscaler cloud providers building the data centers, and the utilities and REITs that have benefited from the power demand and the colocation revenue. Beneath these headline beneficiaries is a category of equipment manufacturers that provide the cooling systems, power distribution infrastructure, uninterruptible power supplies, and the broader electrical equipment that allows data centers to actually operate at the scales that AI workloads require. The companies in this category — Vertiv Holdings, Eaton Corporation, Schneider Electric, ABB, and a handful of more specialised manufacturers — have produced strong returns over the past several years but remain underrepresented in most AI infrastructure investment frameworks.
The structural case for sustained exposure to this picks-and-shovels segment is supported by the specific demand dynamics that AI infrastructure creates. The cooling systems for AI chips that operate at multiples of traditional server power densities require purpose-built liquid cooling and air cooling infrastructure that the equipment manufacturers are positioned to provide. The power distribution infrastructure within data centers requires more sophisticated electrical equipment as the rack power densities increase. The transition from traditional air-cooled servers to the liquid-cooled AI chip configurations represents an architectural shift that benefits the manufacturers who have invested in the relevant capabilities.
Understanding which specific companies have the strongest competitive positions, what the actual demand drivers look like at the operating level, and where the structural questions about the cycle’s sustainability sit provides important context for evaluating this often-overlooked segment of the broader AI infrastructure investment thesis.
The Cooling Architecture Shift
The transition from traditional air-cooled data center architecture to liquid-cooled configurations has been one of the most consequential infrastructure shifts in the AI buildout. The earlier generation of data center cooling relied primarily on air conditioning systems that managed the thermal output of relatively low-density server configurations. The current generation of AI chips — Nvidia H100, H200, B100, and the broader high-end AI accelerator family — produces thermal output per chip that exceeds what air cooling can manage at the rack densities that AI workloads require.
The result is that liquid cooling has shifted from a specialised application used in supercomputing and specific high-performance computing environments to a mainstream requirement for AI data center deployment. The specific liquid cooling architectures vary across deployments (direct-to-chip liquid cooling, rear-door heat exchangers, immersion cooling for the most demanding configurations) and each architecture has specific equipment requirements and operational characteristics.
Vertiv Holdings has been one of the strongest competitive positioning beneficiaries of the liquid cooling shift. The company has invested aggressively in liquid cooling product development and has produced an integrated cooling product portfolio that addresses the various deployment requirements that AI data centers face. The financial results have reflected this competitive positioning, with Vertiv revenue growth substantially exceeding broader equipment manufacturer rates and with strong operating leverage as the AI-related demand has scaled.
The competitive picture in data center cooling includes several other significant players. Schneider Electric has its own cooling product portfolio that has been positioned for the AI deployment requirements. Stulz, a German specialised cooling manufacturer, has captured share particularly in the European market. Various specialised liquid cooling companies (CoolIT Systems, Submer for immersion cooling, Iceotope, several others) have captured share in specific niche applications.
The Power Distribution Equipment Demand
The power distribution infrastructure within data centers has been substantially affected by the AI buildout in ways that benefit the specialised electrical equipment manufacturers. The higher power densities at the rack level (50-100 kilowatts per rack vs the 5-15 kilowatts per rack of traditional configurations) require more sophisticated power distribution units, more robust electrical infrastructure within the rack, and the broader electrical safety and management equipment that operates at these higher power levels.
Eaton Corporation has been particularly well positioned for this segment of the AI equipment opportunity. The company’s power distribution products, uninterruptible power supplies, and the broader electrical infrastructure portfolio have benefited from the AI data center demand. The Eaton revenue growth has been strong across multiple quarters as the order book has continued to expand with AI-related procurement.
The competitive landscape in power distribution includes Schneider Electric (which competes with Eaton across multiple electrical equipment categories), ABB (which has specific strengths in industrial-scale electrical equipment), Siemens (which has substantial electrical infrastructure capabilities through Siemens Energy and other divisions), and various more specialised players. The competitive dynamics across these manufacturers reflect both the specific product positioning each has chosen and the broader customer relationships that influence procurement decisions.
The broader AI power infrastructure thesis includes the electrical equipment beneficiaries as one component of the picks-and-shovels exposure that captures the AI buildout demand without the direct capital intensity that affects the hyperscalers themselves. The structural growth opportunity for the equipment manufacturers extends across the multi-year capacity expansion cycle that the AI demand has created.
The UPS and Backup Power Category
Uninterruptible power supply (UPS) systems for data centers have been one of the most affected equipment categories by the AI buildout. The combination of higher power densities, more critical workload reliability requirements, and the substantial capital investment in AI computing infrastructure has produced demand for backup power systems at scale.
The major UPS manufacturers include Vertiv (which has substantial UPS product positioning), Eaton, Schneider Electric, and various more specialised manufacturers. The competitive dynamics have generally favored the manufacturers with the most comprehensive integrated product offerings that allow customers to procure UPS systems alongside the broader cooling and power distribution equipment, reducing the operational complexity of multiple vendor relationships.
The honest assessment of the UPS category is that the AI demand has been substantial but the competitive structure has been reasonably stable across the major manufacturers. The structural growth supports continued strong revenue across the major players without producing the dramatic share shifts that some other infrastructure equipment categories have experienced.
The Switchgear and Substation Equipment Layer
The transmission and distribution equipment layer — the electrical switchgear, transformers, and substation equipment that connects data centers to the broader electrical grid — has been one of the most acute supply constraint categories in the broader AI infrastructure buildout. The lead times for major switchgear and transformer orders have extended to multi-year horizons across the major manufacturers, reflecting both the AI-driven demand and the broader infrastructure capex cycle that affects multiple sectors.
The major switchgear and substation equipment manufacturers include Eaton, Schneider Electric, ABB, Siemens, Hitachi Energy, GE Vernova, and various specialised manufacturers. The lead time extensions and the corresponding pricing power that the manufacturers have captured have been particularly significant for this category, with multi-year order backlogs supporting continued revenue visibility.
The competitive picture has been affected by both the AI demand and the broader grid modernisation that the utility sector capex cycle has driven. The same equipment manufacturers that benefit from data center demand also benefit from the broader transmission and distribution modernisation, which produces revenue resilience even if specific data center demand moderates.
The Vertiv Competitive Position Specifically
Vertiv Holdings deserves specific attention because the company has captured one of the strongest competitive positions in the AI data center equipment buildout. Vertiv’s product portfolio spans the breadth of the equipment requirements that AI data centers need (cooling systems, power distribution, UPS, monitoring and management) and the integrated product positioning provides customer relationship advantages that pure-play competitors find harder to match.
The financial results that Vertiv has reported through 2025 and 2026 have validated the competitive positioning. Revenue growth has been substantial, the operating margins have expanded as the AI-related premium pricing has been captured, and the order book metrics have continued to support continued strong revenue growth. The stock performance has been correspondingly strong, producing total returns that have substantially outpaced broader electrical equipment sector indices.
The strategic question for Vertiv specifically is whether the competitive position can be sustained as the AI buildout continues and as competitors (particularly Schneider Electric and Eaton with substantial competing portfolios) compete more aggressively for the available demand. The probable trajectory is continued strong revenue with some margin pressure as competition intensifies, which would still support continued investment thesis even as the most dramatic growth periods normalise.
The Risk Factors and Cyclical Considerations
The picks-and-shovels equipment manufacturers face specific risk factors that warrant consideration despite the strong recent performance. The dependence on continued AI capex from the hyperscalers means that any moderation in the hyperscaler capex cycle would directly affect equipment demand. The Q2 2026 earnings season specifically will provide important evidence about whether the hyperscaler capex commitments are sustaining at the levels that current equipment manufacturer expectations imply.
The lead time extensions that have supported pricing power could reverse if capacity comes online faster than demand grows, producing margin pressure as the equipment manufacturers compete for available orders. The historical pattern in industrial equipment cycles has been that the periods of extended lead times and pricing power are followed by periods of capacity surplus and margin compression, which means the current strong margin environment may not persist indefinitely.
The valuation concerns are real for several of the equipment manufacturers. Vertiv specifically trades at valuation multiples that reflect strong continued growth expectations, which means the marginal return depends on continued execution against the bullish expectations rather than on multiple expansion. The other equipment manufacturers trade at more moderate multiples but still reflect the AI-driven growth in their valuations.
The Investor Positioning Considerations
For investors evaluating exposure to the AI infrastructure equipment thesis: the picks-and-shovels segment provides differentiated exposure to the AI buildout that complements rather than replaces the more direct AI exposures (semiconductors, hyperscalers, model providers). The specific company selection requires evaluating the competitive positioning across cooling, power distribution, UPS, and switchgear categories, with each having different specific dynamics.
The strongest competitive positions in 2026 are at Vertiv (specifically positioned for AI data center deployment), Eaton (broader electrical equipment positioning that includes substantial AI exposure), and Schneider Electric (comprehensive product portfolio with strong global positioning). The more specialised companies (CoolIT, Submer, the various specific niche players) offer concentrated exposure to specific segments but with less diversification.
The valuation considerations matter more in 2026 than they did at the cycle’s start. The strong performance has compressed the value opportunity that supported earlier returns, which means the marginal new position should be sized appropriately for the risk that the strong growth expectations may not be fully delivered.
The broader portfolio considerations include the diversification benefit that the picks-and-shovels segment provides relative to direct AI exposures. The equipment manufacturers benefit from the AI buildout but also benefit from the broader electrical infrastructure modernisation that supports their businesses even if specific AI dynamics moderate. The combination provides more resilient exposure than pure AI plays with similar growth characteristics.
The honest position is that the AI data center equipment manufacturers have produced substantial returns supported by genuine structural demand, that the competitive positioning of the leading companies is real and defensible, and that the appropriate exposure depends on careful evaluation of both the specific company positioning and the broader cyclical dynamics that affect the equipment categories. The next several years will continue to test whether the strong recent performance can be sustained, and the investors who have positioned thoughtfully across the equipment manufacturers should continue to capture attractive returns even as the most dramatic growth periods normalise.
