Don't Ignore 'Middleman Operations' Behind the AI Boom

Editor's note: Many companies are rallying on promises of AI transforming their business. But the true long-term winners remain to be seen. Instead of chasing headlines, Marc Chaikin, founder of our corporate affiliate Chaikin Analytics, says some of the biggest winners won't be developers, but the companies supplying the AI build-out...

If enough folks moved to California, Samuel Brannan knew he would be rich...

Brannan arrived in San Francisco in 1846 – a few weeks after the U.S. had taken control of the area from Mexico.

He bought some nearby land, built a flour mill, began publishing a newspaper, and opened a general store at Sutter's Fort in Sacramento.

The first year was slow. Barely 1,000 people lived in the area.

In early 1848, Brannan saw his big opportunity...

A local worker offered Brannan gold dust as payment for whiskey. The man worked at Sutter's Mill, a few miles away on the American River. He said other people had found gold in the riverbed there.

Brannan wanted to print the story in his newspaper. But his staff had all left for Sutter's Mill after hearing the story.

That's when he realized there was a better way to make a fortune off the news.

Instead of waiting for his staff to return, Brannan started ordering goods from stores across California. He bought up every pick, shovel, and pan he could find – plus plenty of flour, salt, blankets, gunpowder, and other supplies.

He understood that he didn't have to chase the boom to make a fortune... he could supply it.

After buying up supplies, Brannan put together a special edition of his newspaper to spread the word. He sent thousands of copies back East – everywhere from Salt Lake City to New York.

On May 12, 1848, Brannan put on a show for San Francisco's residents. He paraded down a busy street holding up a bottle filled with gold flecks as he loudly called out...

"Gold! Gold! Gold from the American River!"

Everyone had heard rumors of the gold strike at Sutter's Mill. But many folks were still skeptical.

That changed with Brannan's publicity stunt.

It triggered an exodus out of San Francisco as thousands rushed to the gold fields.

And it generated a fortune for Brannan... all without ever having to risk looking for gold himself.

Making Money No Matter Who 'Strikes It Rich'

You see, Brannan owned most of the mining supplies in California. Better yet, he owned the only general store on the way to Sutter's Mill.

Brannan sold pans for $15 apiece after paying just $0.20 for each a few months earlier. A pound of gunpowder sold for more than 10 times its normal price. Flour cost about seven times what it went for in the rest of the country.

Brannan made about $36,000 in the first nine weeks of the gold rush.

By that point, the news had spread across America...

The New York Herald eventually got a copy of Brannan's newspaper – the special edition he published in April 1848. It ran its own version of the story on August 19.

Soon, the entire East Coast was talking about the gold rush. President James K. Polk even mentioned it in his State of the Union address that December.

Tens of thousands of people headed out to California.

And as visitors traveled to the American River, Brannan's sales surged to roughly $150,000 a month.

Within a couple years, he became California's first millionaire.

He didn't stop there...

Brannan invested in land, railroads, and telegraph companies in California. He organized a vigilante squad that served as San Francisco's police department. He bought the first steam locomotive in California. And he was elected a state senator in 1853.

Folks, we've all heard of the "picks and shovels" approach to investing...

But most people have never heard of Samuel Brannan.

More than 100,000 people went to California during the gold rush. Nearly all of them failed.

Yet, Brannan made a fortune... by simply acting as a middleman.

He wasn't alone, either. Plenty of folks made a profit selling food, clothing, and other goods to miners.

These kinds of middleman operations rarely earn much respect from investors. But they can make a fortune in the right circumstances.

That's exactly what's happening today. Modern picks-and-shovels companies are cashing in on the AI boom.

Just think of a business like Caterpillar (CAT)...

It isn't an AI company. But it's providing the heavy equipment needed for the data-center build-out fueling the AI megatrend. As such, Caterpillar's stock has surged by about 133% over the past year.

Folks, my point is simple...

You don't have to bet on AI companies themselves to profit from this megatrend.

The picks-and-shovels businesses powering the build-out are positioned to make money – no matter who "wins" with AI.

Good investing,

Marc Chaikin

Editor's note: Marc Chaikin says the AI bull market is entering a new phase that could look very different from the first. Money is starting to rotate away from the household names that have driven this bull market so far. That's why he's unveiling a new breakthrough that will help investors find the next generation of market leaders.