Does This AI Related Stock Deserve a Low PE of 10?

AI data centers are moving beyond Tier 1 tech capitals. These aren't small server rooms; they're sprawling facilities, housing racks upon racks of GPUs working round the clock to train large language models - the kind of technology that powers ChatGPT.

Now, this tidal wave of AI-driven demand has washed onto Indian shores.

In fact, India's biggest business houses and global tech giants are already staking their claim. Reliance, Adani, Airtel, TCS, Tech Mahindra, and even Google are committing billions to build massive data centers and set up AI infrastructure here.

I've been following this space closely. Apart from the scale of investments, what is fascinating is the ripple effect. Every new data center is like an ecosystem in itself.

Think about it. You need servers and GPUs at the core. You need uninterrupted power supplies and backup systems because a blackout can cripple operations. You need advanced cooling systems because GPUs generate enormous heat. You need physical space - acres of it - to house these giant facilities. And you need cables, switches, and transformers to keep the data and electricity flowing.

This is why I often call it the "pick-and-shovel" play of the AI revolution. The world is obsessed with flashy AI apps. But behind the scenes, the companies quietly supplying the tools, hardware and infra could be the real long-term winners in this disruptive trend.

Take Netweb Technologies, for instance - carving out a strong position in servers, storage, and high-performance computing solutions tailored to client needs.

Or look at E2E Networks, a homegrown cloud provider specializing in GPU infrastructure, offering services out of key hubs like Noida and Mumbai. Without them, the revolution stalls.

Then there's the power story. Running a large data center hogs so much power that it could light up a small town. This naturally boosts demand for many products - cables, switches, transformers, and voltage gear.

Companies like Polycab, Havells, RR Cables, D-Link, and 3M India have a direct line into this growth. Backup generators? That's where Kirloskar Oil Engines and Cummins India come into play. For battery backup, Exide is positioning itself in the high-end DC segment.

Cooling is another overlooked but critical piece. Keeping racks of GPUs at safe operating temperatures isn't easy in Indian summers. Bluestar, with its expertise in precision cooling, stands to benefit as data centers mushroom.

Even real estate players are turning this trend into opportunity. Anant Raj, for example, is a beneficiary, suggesting how the property business is being reshaped by AI infrastructure.

And let's not forget the kingpin of chips - Nvidia. GPUs are the beating heart of AI. Nvidia's dominance here is so complete that even China has accused it of anti-competitive practices. While Nvidia itself isn't listed in India, many Indian firms are tightly linked to it, either as distributors, partners, or integrators.

This brings me to an interesting company I've been watching - Rashi Peripherals. The company recently concluded a massive Rs 15 billion order from Yotta Infrastructure to supply servers and components for one of India's first large AI data centers.

Beyond such institutional projects, Rashi has another growth lever: it is the bridge between global brands like Nvidia, Intel, ASUS, HP and the Indian consumer market. As AI-powered PCs begin rolling out in India, distributors like Rashi could be the quiet beneficiaries.

Of course, distribution is a thin-margin business. Rashi's return ratios hover around 13-14% and its debt-to-equity is a reasonable 0.5.

At 10 times earnings, the stock isn't expensive, but investors should remember that efficient working capital management is crucial in this sector. Thin margins leave little room for error. That said, a strong distribution network and sticky global partnerships can help scale profitably in a country like India.

When I piece all this together, the story becomes clear. AI isn't just about algorithms or fancy applications. It's about a new digital infrastructure being built brick by brick, server by server, transformer by transformer.

And for patient investors willing to ride the "picks and shovels" of this AI gold rush, the opportunities could be profound.

This is not an investment recommendation.

It's a reminder that sometimes the smartest way to play a revolution is not at the surface, but in the pick and shovel suppliers that make it possible.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Quantum Information Services Private Limited (Research Analyst)