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| By Sean Brodrick |
If you want to understand just how strange the U.S. economy has become, look at where businesses are spending their construction dollars.
At first glance, the picture doesn't look particularly alarming.
September’s ISM Manufacturing PMI came in at 54.5, signaling expansion.
Money is still being spent. Cranes are still going up.
But take a look at this chart.
Peel away one sector — artificial intelligence — and the outlook for construction changes dramatically.
America is experiencing an investment recession almost everywhere that AI isn't writing the checks.
After adjusting for inflation, spending on manufacturing construction is down nearly 24% from a year ago.
Lodging and traditional office construction have fallen almost 15% and 14%, respectively.
Education and commercial construction are both down by double digits.
Meanwhile, real spending on data centers has surged 64.5%.
It’s like AI is a whole different economy!
Two American Economies
The latest Census construction numbers reinforce the point.
Total U.S. construction spending in August was running at an annualized $2.20 trillion — down 1.7% from a year earlier.
That's before adjusting for inflation.
Manufacturing construction is hit especially hard.
In nominal dollars, factory construction spending is roughly 20% below where it was a year ago.
That's quite a comedown from the factory-building boom of a few years ago.
The CHIPS Act and Inflation Reduction Act helped fuel billions of dollars in spending on semiconductor fabs, battery plants and other manufacturing projects.
But factory construction peaked in 2024.
Now, that wave is rolling over.
Construction of computer, electronics and electrical-equipment factories — the category that includes semiconductor fabs — peaked at an annual rate of $126.4 billion in June 2024.
It's now down to about $52.3 billion.
Meanwhile, data-center construction hit a record annual rate of $85 billion in August, according to KPMG's analysis of Census data.
That's up 73.2% in a single year!
In other words, America is now spending much more building places to house computers than it is building factories that make computers and electronic equipment.
AI Triggers a Power Buildout Boom
That’s only one part of the picture.
All those Nvidia GPUs require electricity — mountains of it.
AI's spending boom is spilling outward into utilities, transmission lines, substations, transformers, switchgear, turbines and backup generation.
Power construction jumped nearly 10% year over year in August.
In fact, power construction has now overtaken manufacturing construction as a category.
And that creates opportunities for us.
AI spending isn't confined to Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN) and Meta Platforms (META) anymore.
The boom is migrating down the supply chain.
That's why Eaton Corp. (ETN) is building a new Nebraska factory to meet surging demand for medium-voltage switchgear.
And Hitachi Energy is spending $457 million to expand its large-power-transformer operations in Virginia.
To be clear, this doesn’t mean all of American manufacturing is in recession.
But construction investment tells a different story.
Businesses aren’t building factories, hotels, offices and stores with anything approaching the enthusiasm they’re showing for AI infrastructure.
That's where we should be looking for our next opportunity, too.
So how do we invest in the one part of America's construction economy that's still booming?
One way is the Defiance AI & Power Infrastructure ETF (AIPO).
I highlighted AIPO earlier this week as a way to profit from AI’s growing demand for electricity.
Now, these construction numbers give us another reason to own it.
The fund owns companies involved in AI hardware, data centers, utilities, power generation, electrical infrastructure and construction.
The expense ratio is 0.69%, so it isn't cheap compared with a broad-market ETF.
But you're paying for targeted exposure to a group of companies I believe has legs.
In other words, AIPO doesn't just invest in AI.
It invests in the enormous physical infrastructure required to make AI possible.
Let’s look at the chart …
The mini-tech wreck we saw recently dragged AI power suppliers down as well.
That brought AIPO to support, which looks like a buying opportunity to me.
The AI buildout is ongoing.
And while much of America’s construction economy struggles, the race to power AI infrastructure is creating opportunities.
AIPO gives us a way to profit from that divide.
All the best,
Sean
