Forget the Chips: 4 Industrial Plays for the AI Rebound

In mid-December 2025, the stock market experienced a significant psychological shift. High-flying semiconductor stocks, which had led the market for months, faced heavy selling pressure following earnings reports from major tech players like Oracle (NYSE: ORCL) and Broadcom (NASDAQ: AVGO). Investors began to question the immediate return on investment from massive capital expenditures in artificial intelligence (AI), leading to a sharp rotation away from chipmakers—the so-called “brains” of AI systems.

However, while the market debates which chip architecture will dominate the future of computing, the physical requirements of AI remain unchanged. Data centers are physical factories that convert electricity into intelligence. They cannot function without regulated power, massive cooling capacity, and water management.

As capital rotates from the volatile chip sector to the industrial body of the AI revolution, a new investment opportunity has emerged. Industrial giants providing the essential utilities that keep the digital economy running are now trading at attractive valuations. Unlike chipmakers, whose valuations often rely on speculative adoption curves, these infrastructure companies rely on signed contracts and physical engineering constraints.

The Cool Defensive Anchor: Johnson Controls International 

Johnson Controls International (NYSE: JCI) stands out as a defensive cornerstone in this volatile market. While the broader technology sector dipped in mid-December, JCI shares showed remarkable resilience, rising approximately 1.7% during the sell-off. This stability stems from the company's successful strategic transformation into a pure-play commercial building solutions provider.

In July 2025, JCI finalized the sale of its residential and light commercial HVAC business to Bosch for $5.6 billion.

This was a critical move that removed cyclical residential risk from the company's portfolio, allowing it to focus entirely on high-growth commercial opportunities.

The company is now aggressively targeting the thermal management needs of data centers.

The company’s financial foundation provides a safety net for investors. JCI reported a record backlog of $16.6 billion, a figure that effectively guarantees revenue visibility well into 2026.

This backlog acts as a buffer, insulating the stock from short-term fluctuations in chip demand because these orders represent committed infrastructure projects that must be completed regardless of daily stock market sentiment.

Technologically, JCI is positioning itself at the forefront of the heat management revolution. In September 2025, the company launched its Coolant Distribution Unit (CDU). This hardware is essential for liquid cooling systems required to keep high-density AI servers from overheating. Furthermore, management has committed to a $5 billion accelerated share repurchase program, which provides a strong floor for the stock price during broader market volatility.

The Power & Thermal Giant: Eaton Corporation

Eaton Corporation (NYSE: ETN) is capitalizing on two major secular trends simultaneously: the modernization of the electrical grid and the rapid rise of liquid cooling. After a period of rapid appreciation, Eaton’s stock price recently pulled back to around $328, down roughly 18% from its highs. For investors looking for a long-term entry point into a market leader, this consolidation offers a rare opportunity.

The most significant catalyst for Eaton is its $9.5 billion acquisition of Boyd Thermal, announced in November 2025.

This deal fundamentally transforms Eaton from a company focused primarily on switchgear and power management into a dual-threat provider.

By adding Boyd’s cold plate and liquid cooling technology to its portfolio, Eaton effectively doubles its addressable revenue for every data center rack it services.

It can now power the rack and cool the chips inside it. Demand for these solutions is accelerating rapidly.

In the third quarter of 2025, orders for Eaton’s Electrical Americas sector rose approximately 70%, driven almost entirely by data center projects.

This metric shows that demand is not slowing. To meet this surging volume, the company announced a $50 million investment in its Virginia facility to ramp up the production of grid-to-chip power distribution systems. This capital expenditure confirms that management is putting money behind its bullish outlook, securing capacity for the next leg of growth.

The Essential Resource: Xylem Inc. 

Water is often the overlooked constraint in AI computing. High-performance data centers consume massive amounts of water for their cooling loops, and moving that liquid requires specialized pumps and smart metering systems to ensure efficiency and sustainability. Xylem Inc. (NYSE: XYL) is the dominant player ensuring this flow continues uninterrupted.

While water utilities are often viewed as slow-growth businesses, Xylem is posting growth numbers that rival technology companies. In the third quarter of 2025, the company reported revenue growth of 7.8% and a 23% increase in adjusted earnings per share.

This performance is driven by the urgent need for efficient water management in industrial applications, including the data center sector.

Strategically, Xylem is refining its portfolio to focus on high-margin opportunities. The company recently divested its international metering business for $125 million, with the expected closing in early 2026.

This move is designed to concentrate resources on the more profitable North American market. Additionally, management has successfully navigated tariff risks by utilizing pricing power to protect profit margins. This demonstrates that the company’s growth story remains intact despite global trade headwinds, making it a resilient addition to an infrastructure portfolio.

The Future of Baseload: NuScale Power 

As data centers expand, the limitations of renewable energy are becoming apparent. Solar and wind power are intermittent, but AI training models require 24/7 uptime. Small Modular Reactors (SMRs) offer a carbon-free solution that fits this specific need for constant, reliable baseload power. NuScale Power (NYSE: SMR) is at the forefront of this energy transition.

The company achieved a commercial milestone in September 2025 by signing a historic agreement with the Tennessee Valley Authority (TVA) and ENTRA1 to deploy up to 6 gigawatts of SMR capacity.

This deal moves SMR technology from a theoretical concept to a commercial pipeline with tangible scale, validating the technology for future customers.

Financially, NuScale has addressed investor concerns regarding liquidity. The company holds $753.8 million in cash and investments with no debt.

This war chest ensures that NuScale has the runway it needs to execute its manufacturing phase without the immediate threat of equity dilution.

For investors willing to tolerate higher volatility, NuScale represents the high-growth component of the infrastructure trade, offering exposure to the future of energy generation.

Infrastructure Over Hype: Buying the Builders

The current market recalibration surrounding semiconductor stocks is creating a mispricing of essential assets. While the valuation of chipmakers relies on speculative software adoption curves and margin sustainability, the companies building the industrial backbone rely on signed contracts, physical engineering constraints, and massive order backlogs. By investing in the landlords and utility providers of the AI revolution, investors can gain exposure to secular growth trends while anchoring their portfolios with industrial stability.

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The article "Forget the Chips: 4 Industrial Plays for the AI Rebound" first appeared on MarketBeat.