Trillions of dollars tied to artificial intelligence are moving into the nuts and bolts of the real economy, with power and defense emerging as early winners. In a recent discussion, Hennion & Walsh Asset Management President and CIO Kevin Mahn outlined where the money is going, why utilities and defense contractors stand out, and how these forces may shape markets into 2026.
The surge in AI investment is no longer focused only on chips and software. It is spreading to the infrastructure that keeps data centers running and nations secure. Mahn pointed to electricity supply, grid upgrades, and defense modernization as key channels for new capital. His outlook suggests investors should track power availability, federal and state policy, and the pace of commercial AI adoption over the next two years.
From Code To Concrete: Where AI Dollars Flow
Spending on AI infrastructure is scaling from labs to large projects. Data centers need land, transmission lines, cooling, and steady power. That turns utilities, independent power producers, and grid equipment makers into central players.
Mahn highlighted that this buildout spans generation and transmission. He stressed the need for reliable energy sources, flexible backup, and new lines to reach growing clusters of compute-heavy facilities.
- Generation: New capacity from gas, nuclear, and renewables to meet steady loads.
- Transmission: Upgrades and new routes to connect distant power to data hubs.
- Efficiency: Advanced cooling, power management, and site design to reduce waste.
He also noted that supply chains for transformers and switchgear remain tight, which can slow projects and increase costs. That could push owners to lock in long-term contracts and seek predictable rate structures.
Power Constraints Become A Market Variable
The power question is now a market risk and an investment signal. If electricity capacity lags, data center timelines slip, and AI rollouts can stall. Mahn framed power access as a gating factor for growth rather than a simple utility input.
Some regions are closer to new data centers, fiber routes, and substation capacity. Others face permitting delays or limited water for cooling. The result is a patchwork of timelines by state and grid operator.
For equities, he suggested that companies with firm power contracts or on-site generation could gain an edge. Utilities with constructive regulators and clear capital plans may also find support from income-focused investors as rates fluctuate.
Defense Modernization Rises With AI
Defense is becoming another destination for AI-driven spending. Mahn pointed to programs that pair AI with sensors, communications, and autonomous systems. This has implications for software, semiconductors, cybersecurity, and advanced manufacturing.
AI-assisted decision tools, training simulators, and maintenance systems can shorten cycles and improve readiness. Contractors that integrate software with hardware may benefit, while suppliers of secure chips and cloud services stand to win recurring work.
Geopolitical risk and cyber threats keep defense budgets in focus. Mahn’s comments suggest investors should watch procurement pipelines, export controls, and the balance between classified and commercial technology.
What Could Shape 2026 Markets
Mahn’s 2026 outlook centers on three drivers: interest rates, earnings tied to AI adoption, and the buildout pace of power and defense projects. Rate paths will influence how capital-intensive plans are financed. Earnings will hinge on when AI pilots become production deployments.
He flagged execution risk. Delays in transformers or interconnections may push projects into later quarters. Policy changes can also shift timelines for nuclear, gas, or transmission approvals. For defense, budget negotiations and program testing will guide revenue recognition.
- Opportunities: Utilities with clear capex plans, data center operators with secured power, select defense primes and suppliers.
- Risks: Permitting delays, supply bottlenecks, rate volatility, and slower-than-expected AI adoption in enterprises.
- Indicators to track: Grid interconnection queues, transformer lead times, defense award backlogs, and reported AI-driven revenue.
A Balanced View For Investors
Mahn’s message is pragmatic: AI’s next leg depends on physical infrastructure and security. Power and defense offer exposure to that shift, but both come with execution and policy risk.
For diversified portfolios, he pointed to the value of quality balance sheets, stable cash flows, and firms that can pass through costs. He also stressed the importance of focusing on measurable milestones—capacity additions, signed contracts, and booked orders—rather than headlines.
As 2026 approaches, investors will watch whether power projects keep pace with compute demand and whether defense programs scale on schedule. Those outcomes will guide earnings, valuations, and sector leadership in the next phase of AI-driven growth.
