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Hello, Reader.
There is a common pattern in new technology cycles, and it goes like this:
The innovation itself appears. Then, a bottleneck emerges. Next, capital floods in to solve the problem. Finally, the regime changes.
We saw this “regime change,” or complete reorganization of stock market winners and losers, in the in the dot-com bust phase.
Capital rotated out of the high-profile names and into a variety of other sectors, including base metals, precious metals, energy insurance, and utilities. Those sectors delivered solid double-digit or triple-digit returns over the early part of the 2000s, even while the Amazons, Intels, and Ciscos of the world fell 80% or more.
Another regime change is happening now.
Since the early AI revolution, the Magnificent Seven companies have been sat securely on the throne. The group includes Alphabet Inc. (GOOGL), Amazon.com Inc. (AMZN), Apple Inc. (AAPL), Meta Platforms Inc. (META), Microsoft Corp. (MSFT), Nvidia Corp. (NVDA), and Tesla Inc. (TSLA).
But their seat is soon to be usurped. We are starting to see a rotation out of some of the highest profile, high beta tech stocks and into more real-world, asset-backed sectors.
In today’s Smart Money, let’s look at a singular, but powerful, example.
Then, I’ll share one of my favorite stocks that is significantly outperforming the Mag 7 so far this year.
Supplier Over Spender
In the past six months, Corning Inc. (GLW) – a supplier of the data center buildout – is up nearly 140%. On the other hand, Nvidia – a customer of Corning – is only up around 1.4%.
Investors are rotating away from AI chips and toward AI picks and shovels. Corning is essentially the “glass backbone” of AI data centers, which is why investors are rediscovering it.
The fiber-optic, hard-asset company is eclipsing the gains of the Wall Street darling with ease. Nvidia would need huge upside surprises to keep rising, while Corning simply needs to show steady AI-driven growth.
That’s a Mag 7 killer.
This dynamic will only increase as we move forward.
That means it’s important to own the companies that are providers or suppliers to this massive AI buildout, rather than the companies that spending the money to do build.
Mag 7 Killer: A Prolific Energy Producer
One of my favorite Mag 7 killer is one of America’s most prolific energy producers, and it’s firmly positioned to fuel America’s AI buildout. Data center demand for natural gas could become especially acute in the Delaware Basin, with a new “Data Center Alley” potentially blossoming in the region.
As one of the leading producers in the Delaware Basin, Devon Energy Corp. (DVN) is well-positioned to benefit from structurally improving pricing trends in the region.
For the last few years, the Delaware Basin has been rapidly boosting its production of both oil and gas. Unfortunately, gas volumes have overtaken pipeline capacity. As a result, much of the gas from the Delaware Basin is “stranded” – the oil and gas industry’s polite way of saying “worthless unless you can move it.”
Producers flared it. Trucked it. Discounted it to oblivion. As such, the Delaware Basin has behaved for years like a brilliant student stuck in detention. It held enormous potential, but had no way to express it.
But detention is ending. Two major pipeline projects are improving the economics of the Delaware Basin, especially for Devon.
At the start of this year, the Wall Street brain trust expected Devon to post adjusted earnings-per-share (EPS) of roughly $3.95 in 2026. Today, those same prognosticators expect the company to earn $5.63 per share this year – a 35% increase.
Therefore, even though Devon shares have advanced 26% this year, the company’s expected earnings have increased even more.
To learn more about all of the Mag 7 killers that I recommend, join me today at Fry’s Investment Report.
Regards,
Eric Fry
