By Bill Ledley, Tamzin Manning

How AI demand is reshaping the Industrials sector

Winners will be defined by differentiation at scale.

April 2026

Three key takeaways

AI is driving a capital‑intensive industrial upcycle. The AI buildout is increasingly constrained by physical infrastructure—power, cooling, connectivity, and speed to deployment—creating sustained demand for select industrial suppliers.
Cyclicals and secular growth are converging. We expect those industries sectors that have benefited from powerful secular tailwinds to remain strong, while some industries look poised to return to growth – which is typically a very attractive setup for cyclical stocks.
Winners will be defined by differentiation at scale: We believe companies that can deploy complex technology, service, and manufacturing capabilities—especially in power infrastructure, liquid cooling, and electronic test & measurement—are positioned for outsized earnings growth.

The rapid acceleration of artificial intelligence (AI) is reshaping not only digital industries but also the physical infrastructure that enables them. In the most recent discussion from our Analyst Spotlight series, Bill Ledley discussed how the industrials sector is diverging—and why that divergence is creating compelling opportunities for long‑term investors.

Bill’s analyst coverage includes electrical equipment, machinery, industrial distributors, and industrial technology companies. He is also responsible for an investment sleeve within our Structured Research Equity strategy. Here is a summary of his current perspectives.

AI is driving a structural split within industrials

Over the past few years, there has been a wide divergence within the Industrials sector as industries with powerful secular tailwinds, such as data center, utility, and power infrastructure.
AI is accelerating this divergence as rising compute intensity drives larger, more power‑dense data centers, expanding the addressable market for infrastructure providers.
Capital allocation has become more cycle‑aware, with greater emphasis on identifying “true winners” able to deliver differentiated technology, manufacturing, and service at scale.
In Bill’s view, Vertiv, a leader in data center power and thermal management, is a prime example of a player separating itself from an increasingly crowded field.
Its integrated modular systems reduce installation complexity and time, while its partnership with Nvidia aligns its innovation roadmap directly with cutting‑edge customer need.
On the other side, some industries that have suffered through rolling recessions now look poised to return to growth – which is typically a very attractive setup for cyclical stocks. The best opportunities here will be those companies whose long-term growth opportunities were overly discounted at the bottom of their business cycle.

Rising system complexity is elevating “picks‑and‑shovels” providers

Addressing the increasing complexity of datacenters and AI infrastructure is a strategic imperative for hyperscalers and their partners.
Bill believes that Keysight is a critical “picks and shovels” provider, able to support customers across multiple technology and innovation cycles.
Its exposure spans defense modernization, semiconductor expansion, high‑speed Ethernet (800G/1.6T), and the longer‑term evolution toward 6G.
In Bill’s view, the convergence of these innovation waves underpins a multi‑year growth opportunity that remains underappreciated by the market.

Power availability has become a binding constraint for AI deployment

Power availability has emerged as a key constraint for AI deployment, making “time to power” a strategic differentiator for hyperscale data center developers.
One of Bill’s favored names in this area is Caterpillar whose behind‑the‑meter solutions enable faster power deployment, often well ahead of grid‑based alternatives, supported by decades of expertise through its Solar Turbines business.
Its global service network and exposure to data center construction and mining further reinforce its strategic positioning, in Bill’s view.
In parallel, Caterpillar is embedding “physical AI” across its equipment fleet, improving productivity, efficiency, and safety in industrial applications.

Across these segments—power generation, thermal management, test and measurement—Bill believes that the next wave of AI‑driven industrial winners will be those that can innovate quickly while scaling reliably. Among these, Keysight remains his highest‑conviction idea given its competitive position and exposure to multiple secular growth engines.

As AI’s expansion continues, Bill believes the companies powering both its physical and technological foundations are positioned to benefit most. For investors, recognizing these second‑order effects within industrials may prove critical to navigating the next phase of AI.

U.S. Structured Research Equity Strategy

Risks – the following risks are materially relevant to the portfolio:

Equity – Equities can lose value rapidly for a variety of reasons and can remain at low prices indefinitely.
Geographic concentration – Geographic concentration risk may result in performance being more strongly affected by any social, political, economic, environmental or market conditions affecting those countries or regions in which the portfolio's assets are concentrated.
Small and mid-cap risk – Small and mid-size company stock prices can be more volatile than stock prices of larger companies.

General Portfolio Risks

Conflicts of Interest – The investment manager's obligations to a portfolio may potentially conflict with its obligations to other investment portfolios it manages.
Counterparty – Counterparty risk may materialise if an entity with which the portfolio does business becomes unwilling or unable to meet its obligations to the portfolio.
Custody – In the event that the depositary and/or custodian becomes insolvent or otherwise fails, there may be a risk of loss or delay in return of certain portfolio's assets.
Cybersecurity – The portfolio may be subject to operational and information security risks resulting from breaches in cybersecurity of the digital information systems of the portfolio or its third-party service providers.
ESG – Environmental, social or governance event(s) or condition(s) may occur, which could have/result in a material negative impact on the value of an investment and performance of the portfolio.
Investment portfolio – Investing in portfolios involves certain risks an investor would not face if investing in markets directly.
Inflation – Inflation may erode the value of the portfolio and its investments in real terms.
Market – Market risk may subject the portfolio to experience losses caused by unexpected changes in a wide variety of factors.
Market liquidity – In extreme market conditions it may be difficult to sell the portfolio's securities and it may not be possible to redeem at short notice.
Operational – Operational risk may cause losses as a result of incidents caused by people, systems, and/or processes.
Sustainability – Portfolios that seek to promote environmental and/or social characteristics may not or only partially succeed in doing so.

The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for the portfolio, and no assumptions should be made that the securities identified and discussed were or will be profitable. Any securities purchased do not represent the entire portfolio’s holdings and, in the aggregate, may represent a small percentage of the portfolio’s holdings.

The content is at strategy-level. Please note that differences in regional product names and regulations will result in variations in the holdings of the underlying investment vehicles.

Sector analysts perform research and provide investment recommendations, in partnership with the portfolio managers.

Bill Ledley Investment Analyst

Tamzin Manning Portfolio Specialist

Apr 2026 From the Field

How innovation is changing where investors look for defensive quality

Playing defense in stormy markets requires a more nuanced approach that evolves with the times.

By Tedd Alexander, David Corris, Brian Dausch

IMPORTANT INFORMATION

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a guarantee or a reliable indicator of future results. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

Australia - Issued by T. Rowe Price Australia Limited (ABN: 13 620 668 895 and AFSL: 503741), Level 28, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000, Australia. For Wholesale Clients only.

Brunei - This material can only be delivered to certain specific institutional investors for informational purpose only. Any strategy and/or any products associated with the strategy discussed herein has not been authorised for distribution in Brunei. No distribution of this material to any member of the public in Brunei is permitted.

Canada - Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc.’s investment management services are only available to non-individual Accredited Investors and non-individual Permitted Clients as defined under National Instrument 45-106 and National Instrument 31-103, respectively. T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment management services.

Colombia, Chile, Mexico, Perú, Uruguay - This material is prepared by T. Rowe Price International Ltd - Warwick Court, 5 Paternoster Square, London, EC4M 7DX which is authorised and regulated by the UK Financial Conduct Authority - and issued and distributed by locally authorized distributors only. For professional investors only.

DIFC - Issued in the Dubai International Financial Centre by T. Rowe Price International Ltd which is regulated by the Dubai Financial Services Authority as a Representative Office. For Professional Clients only.

EEA - Unless indicated otherwise this material is issued and approved by T. Rowe Price (Luxembourg) Management S.à r.l. 35 Boulevard du Prince Henri L-1724 Luxembourg which is authorised and regulated by the Luxembourg Commission de Surveillance du Secteur Financier. For Professional Clients only.

Hong Kong - Issued in Hong Kong by T. Rowe Price Hong Kong Limited, 6/F, Chater House, 8 Connaught Road Central, Hong Kong. T. Rowe Price Hong Kong Limited is licensed and regulated by the Securities & Futures Commission. For Professional Investors only.

Indonesia - This material is intended to be used only by the designated recipient to whom T. Rowe Price delivered; it is for institutional use only. Under no circumstances should the material, in whole or in part, be copied, redistributed or shared, in any medium, without prior written consent from T. Rowe Price. No distribution of this material to members of the public in any jurisdiction is permitted.

Mainland China - This material is provided to qualified investors only. No invitation to offer, or offer for, or sale of, the shares will be made in the mainland of the People’s Republic of China (“Mainland China”, not including the Hong Kong or Macau Special Administrative Regions or Taiwan) or by any means that would be deemed public under the laws of the Mainland China. The information relating to the strategy contained in this material has not been submitted to or approved by the China Securities Regulatory Commission or any other relevant governmental authority in the Mainland China. The strategy and/or any product associated with the strategy may only be offered or sold to investors in the Mainland China that are expressly authorized under the laws and regulations of the Mainland China to buy and sell securities denominated in a currency other than the Renminbi (or RMB), which is the official currency of the Mainland China. Potential investors who are resident in the Mainland China are responsible for obtaining the required approvals from all relevant government authorities in the Mainland China, including, but not limited to, the State Administration of Foreign Exchange, before purchasing the shares. This document further does not constitute any securities or investment advice to citizens of the Mainland China, or nationals with permanent residence in the Mainland China, or to any corporation, partnership, or other entity incorporated or established in the Mainland China.

Malaysia - This material can only be delivered to specific institutional investor. This material is solely for institutional use and for informational purposes only. This material does not provide investment advice or an offering to make, or an inducement or attempted inducement of any person to enter into or to offer to enter into, an agreement for or with a view to acquiring, disposing of, subscribing for or underwriting securities. Nothing in this material shall be considered a making available of, solicitation to buy, an offering for subscription or purchase or an invitation to subscribe for or purchase any securities, or any other product or service, to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the laws of Malaysia.

New Zealand - Issued by T. Rowe Price Australia Limited (ABN: 13 620 668 895 and AFSL: 503741), Level 28, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000, Australia. No Interests are offered to the public. Accordingly, the Interests may not, directly or indirectly, be offered, sold or delivered in New Zealand, nor may any offering document or advertisement in relation to any offer of the Interests be distributed in New Zealand, other than in circumstances where there is no contravention of the Financial Markets Conduct Act 2013.

Philippines - ANY STRATEGY AND/ OR ANY SECURITIES ASSOCIATED WITH THE STRATEGY BEING DISCUSSED HEREIN HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES REGULATION CODE. ANY FUTURE OFFER OR SALE OF THE STRATEGY AND/ OR ANY SECURITIES IS SUBJECT TO REGISTRATION REQUIREMENTS UNDER THE CODE, UNLESS SUCH OFFER OR SALE QUALIFIES AS AN EXEMPT TRANSACTION.

Singapore - Issued by T. Rowe Price Singapore Private Ltd. (UEN: 201021137E), 501 Orchard Rd, #10-02 Wheelock Place, Singapore 238880. T. Rowe Price Singapore Private Ltd. is licensed and regulated by the Monetary Authority of Singapore. For Institutional and Accredited Investors only.

South Africa - Issued in South Africa by T. Rowe Price International Ltd (TRPIL), Warwick Court, 5 Paternoster Square, London EC4M 7DX, is an authorised financial services provider under the Financial Advisory and Intermediary Services Act, 2002 (Financial Services Provider (FSP) Licence Number 31935), authorised to provide “intermediary services” to South African Investors. TRPIL´s Complaint Handling Procedures are available to clients upon request. The Financial Advisory and Intermediary Services Act Ombud in South Africa deals with complaints from clients against FSPs in relation to the specific services rendered by FSPs. The contact details are noted below: Telephone: +27 12 762 5000, Web: www.faisombud.co.za, Email: info@faisombud.co.za

South Korea - This material is intended only to Qualified Professional Investors. Not for further distribution.

Switzerland - Issued in Switzerland by T. Rowe Price (Switzerland) GmbH, Talstrasse 65, 6th Floor, 8001 Zurich, Switzerland. For Qualified Investors only.

Taiwan - This does not provide investment advice or recommendations. Nothing in this material shall be considered a solicitation to buy, or an offer to sell, a security, or any other product or service, to any person in the Republic of China.

Thailand - This material has not been and will not be filed with or approved by the Securities Exchange Commission of Thailand or any other regulatory authority in Thailand. The material is provided solely to “institutional investors” as defined under relevant Thai laws and regulations. No distribution of this material to any member of the public in Thailand is permitted. Nothing in this material shall be considered a provision of service, or a solicitation to buy, or an offer to sell, a security, or any other product or service, to any person where such provision, offer, solicitation, purchase or sale would be unlawful under relevant Thai laws and regulations.

UK - This material is issued and approved by T. Rowe Price International Ltd, Warwick Court, 5 Paternoster Square, London EC4M 7DX which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.

USA - Issued in the USA by T. Rowe Price Associates, Inc., investment advisers of T. Rowe Price strategies and funds. T. Rowe Price Investment Services, Inc., distributor of T. Rowe Price funds. For institutional investors only.

© 2026 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, the Bighorn Sheep design and related indicators (see troweprice.com/ip) are trademarks of T. Rowe Price Group, Inc. All other trademarks are the property of their respective owners. Use does not imply endorsement, sponsorship, or affiliation of T. Rowe Price with any of the trademark owners.

202603-5343619

Download

Latest Date Range

Audience for the document: Share Class: Language of the document:

Download Cancel

Open

Share Class: Language of the document:

Open Cancel

Change Details

If you need to change your email address please contact us.

Subscriptions

You are ready to start subscribing.

Get started by going to our products or insights section to follow what you're interested in.

Products Insights

GIPS^® Information

T. Rowe Price (“TRP”) claims compliance with the Global Investment Performance Standards (GIPS®).

A complete list and description of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request.

Other Literature

You have successfully subscribed.

Notify me by email when

regular data and commentary is available
exceptional commentary is available

new articles become available