Investing in AI shouldn’t only be about high-priced tech giants – the market has plenty of surprisingly well-placed value picks too. Brad Kinkelaar explains where to look
• Value in AI-adjacent companies
• Downside protection matters when fear returns
• Find out about Barrow Hanley’s global equities investment solutions
Markets are pricing perfection into a narrow set of artificial intelligence leaders, but disciplined investors should resist overpaying for overconfidence, argues Barrow Hanley’s Brad Kinkelaar.
Leading AI stocks have rallied sharply as technology valuations expand, widening the valuation gap between value stocks and the broader market.
The last time the growth trade became this crowded, the ultimate correction was painful – tech stocks fell by a third in 2022 as market confidence collapsed.
But investors don’t have to join the momentum trade to benefit from AI’s long-term growth as the AI revolution extends well beyond headline names, says Kinkelaar.
“We like growth. Growth is not a dirty word for us,” Kinkelaar says.
“But we just have to maintain discipline.”
While companies spending billions on data centres have risen in value, many of the beneficiaries of that spending have been overlooked.
Companies involved in infrastructure, energy and equipment are generating steady cash flows and trade on more reasonable valuations, offering investors a way to capture AI upside while protecting against downside risk, he says.
Kinkelaar, a senior portfolio manager at global value investing leader Barrow Hanley, made his case at the annual Conexus 2025 Fiduciary Investors Symposium in Victoria last week.
Below you can read more of his argument.
Value in AI
Taking a value-oriented approach to AI means getting access to AI’s upside without paying premium prices for the technology leaders, says Kinkelaar.
That discipline can provide protection when markets inevitably turn, he says.
“When fear enters into the marketplace, valuations matter.
“In 2022, those great growth stocks sold off harder than anything else.
“Technology was down 36 per cent, growth was down 28 per cent, the world index was down 18 per cent.
“But value was down 7 per cent. Our portfolio was down 4 per cent, just simply because we weren’t playing the same game that everybody else was playing.”
The AI revolution is creating attractive opportunities in data centre infrastructure, utilities, cloud computing equipment and even Chinese technology firms trading at steep discounts.
“We don’t want to overpay for overconfidence,” Kinkelaar says. “We want to own great growth companies too, and we want to own them at the right price.”
Finding value in the AI ecosystem
Barrow Hanley’s global value research team has identified 18 value-investing AI opportunities with exposure to data centres, energy and cloud computing, most of which don’t look like traditional AI stocks, says Kinkelaar.
“When we go through these types of recommendations, there’s a similar theme – we’re trying to not overpay despite having high quality companies.”
Vertiv Holdings (NYSE:VRT) exemplifies the approach.
Barrow Hanley first invested in Vertiv - which makes power and cooling systems for data centres – at US$21 a share, then added meaningfully at US$12 a share as the stock fell. Over four years, earnings have risen from US33 cents a share to more than US$4 a share by next year.
“So huge growth, all coming from data centre spending, and over the same time the multiple has doubled,” says Kinkelaar.
The stock has since risen above US$160 – up eight times from the initial purchase and more than 13 times from the lowest entry point. Barrow Hanley is now exiting the position as valuations move beyond its disciplined range.
“It’s a great growth company – and it’s certainly participating as a cash flow recipient for all of this spending,” says Kinkelaar.
Cyclical opportunities in infrastructure
Kinkelaar says Barrow Hanley has found similar success in Ciena (NYSE:CIEN), a supplier of equipment for fibre optic networks. The company has been around for decades but fell out of favour when broadband spending capital expenditure cycle hit a cyclical low.
“It’s up almost 4x from where we bought it,” he says.
“Buy when it’s out of favour. Buy when you have cyclical headwinds. Buy when the valuations are at lows. We can participate in growth stocks like this. We just have to be patient when they come into our wheelhouse on valuation terms.”
Kinkelaar says regulated utilities like Entergy Corp (NYSE:ETR) also offer compelling AI-related growth as data centre spending lifts and raises energy demand.
“There aren’t too many businesses outside of the tech world where we’re talking about 8–10 per cent revenue growth over the next 10 years,” Kinkelaar says. “And this is a regulated utility.”
China’s unloved technology leaders
China’s out of favour tech sector is also offering AI opportunities.
Alibaba (NYSE:BABA) fell to less than four times EBITDA as Western investors shunned Chinese markets.
“It’s the amazon.com of China, but they make money like Google with advertising and paid search,” says Kinkelaar. “They’re also the largest cloud computing company in China.”
Value investing matters
“When fear enters the marketplace, valuations matter,” Kinkelaar says.
Barrow Hanley’s portfolio trades at a cheaper valuation than the world value index, yet its underlying quality – measured by yield, margins and growth – are just as strong as those in the broader global benchmark.
“In fact, over the last five years, our portfolio has actually beaten the World Index, our portfolio has beaten the World Value Index, and our portfolio has beaten the Growth Index.
“We’ve beaten 90 per cent of our growth manager peers.
“And it’s not because we’re outperforming on the upside. We’re trying to keep up on the upside, but we also protect on the downside.
“We’re doing something fairly unique here. I’m not an AI expert, I’m not a data centre expert, but we’re finding good investments in a value discipline way that keeps us in the ball game.”
About Brad Kinklaar and Barrow Hanley
Brad Kinkelaar is a Barrow Hanley senior managing director and portfolio manager with almost three decades of experience.
Barrow Hanley is a global leader in value investing, managing assets for clients for more than 40 years.
Barrow Hanley Global Share Fund aims to provide investors with long-term capital growth through investment in quality global shares.
Barrow Hanley Global Share Active ETF (ASX:GLOB) is a unit class in the Barrow Hanley Global Share Fund.
Barrow Hanley is distributed by Perpetual Asset Management in Australia.