Remember when everyone was obsessed with finding the next iPhone supplier? Yeah, that didn’t end well for most of them.
Back in the mid-2010s, Wall Street went absolutely bonkers every time a company got picked to make some tiny component for Apple. Skyworks, Cirrus Logic, Universal Display – these stocks would rocket double-digits on a single analyst note. But here’s the kicker: Apple was actually a terrible customer. They demanded rock-bottom prices and perfection, making it nearly impossible for these hardware makers to turn a real profit. Most of their stock charts ended up looking like Mount Everest – what goes up, must come down.
The real winners? Companies like Uber, ByteDance (TikTok’s former owner), and AppLovin – the ones building experiences on top of those shiny iPhones. They’re now worth more than the biggest iPhone suppliers combined.
Plot twist: The exact same thing is happening with AI right now.
Last week, we watched AI “infrastructure” stocks get absolutely demolished. Chipmakers, data center developers, power utilities – basically anyone selling shovels in this AI gold rush – dropped double digits. Why? Because investors finally realized these companies are pouring billions into what might be a profitless industry.
But while everyone’s panicking about the wrong stocks, the smart money is quietly eyeing the “Stage 2” AI companies – the ones that actually use AI to deliver better experiences.
Take Thomson Reuters (TRI) – yeah, the legal research people. When Google added legal search to Google Scholar back in 2009, everyone thought it would kill LexisNexis and Westlaw. Spoiler alert: it didn’t. Turns out, lawyers need more than just fast search – they need analysis, notes, and accuracy that no chatbot can guarantee (yet). Thomson Reuters has spent decades building the best legal research platform, and they’re now using AI to make it even better while humans still check the work. The stock’s down 60% from its peak, but it’s got serious upside potential.
Then there’s ServiceNow (NOW) – the company that makes business processes less painful. They’ve been using AI since before it was cool, and now 85% of Fortune 500 companies use their platform. With a 98% customer retention rate and 20% revenue growth, they’re basically the Swiss Army knife of business software. While everyone’s freaking out about AI infrastructure costs, ServiceNow is quietly building the platform that makes AI actually useful for real companies.
Here’s the thing: this is exactly like the 5G rollout. The infrastructure companies (AT&T, Verizon) that built the networks? Their stocks went nowhere. But Netflix, TikTok, and Apple – the companies that used 5G to deliver better experiences? They absolutely crushed it.
So while everyone’s either panic-selling or buying the dip in chipmakers, the real opportunity might be in these “Stage 2” companies that are using AI to solve actual problems. Because at the end of the day, nobody cares about your fancy AI model if it can’t help them get stuff done.
Sometimes the best investments are hiding in plain sight, getting beaten up for all the wrong reasons.