Hyperscalers are selling their own securities (stocks, bonds) to fund a massive CapEx cycle in physical infrastructure. The most direct trade is to mirror their actions: sell their securities and buy what they are buying—the raw materials and commodities needed for data centers, where the real bottlenecks now lie.

Instead of betting on specific AI models like ChatGPT, a more robust strategy is to invest in the underlying infrastructure that all AI development requires. This 'onion' approach focuses on second-order essentials like semiconductors and data centers, which are poised to grow regardless of which consumer-facing application wins.

To hedge against a potential financing bubble in AI, an investor could buy the old-line industrial companies building the physical data centers while shorting the private credit firms providing the financing. This strategy capitalizes on tangible spending while protecting against the downside of over-leveraged, high-risk financial arrangements.

During the dot-com crash, application-layer companies like Pets.com went to zero, while infrastructure providers like Intel and Cisco survived. The lesson for AI investors is to focus on the underlying "picks and shovels"—compute, chips, and data centers—rather than consumer-facing apps that may become obsolete.

In a new, high-risk category, betting on infrastructure ('shovels') isn't necessarily safer. If the category fails, both app and infra lose. But if it succeeds, the application layer captures disproportionately more value, making the infrastructure a lower-upside bet for the same level of existential risk.

Instead of betting on which AI models or applications will win, Karmel Capital focuses on the infrastructure layer (neocloud companies). This "pick and shovel" strategy provides exposure to the entire ecosystem's growth with lower valuations and less risk, as infrastructure is essential regardless of who wins at the top layers.

Concerned about AI's potential to displace white-collar jobs, Wilkinson views investing in the underlying infrastructure as a key strategy. He specifically invested in a Bitcoin mining company pivoting to AI data centers, effectively buying into the "toll bridge" of the future to protect his capital.

Rather than picking a winning AI or crypto, the smarter investment is in the 'picks and shovels.' This means focusing on the infrastructure every autonomous agent will require to transact—such as wallets, custody services, and blockchain rails—regardless of which specific application succeeds.

To capitalize on the AI boom while mitigating risk, investors should focus on 'enablers'—companies providing essential infrastructure like semiconductors, data centers, and cloud services. This 'picks and shovels' strategy avoids betting on specific application-level winners, which was a losing strategy for many dot-com investors.