Listen to the audio version of this article (generated by AI).
Tom Yeung here with your Sunday Digest.
In 1893, America’s railroad boom came to a screeching halt.
The industry had spent two decades borrowing vast fortunes to lay thousands of miles of track, which the country now had too much of. When the money ran out, the Union Pacific, the Northern Pacific, and the Santa Fe railroads went into receivership. Railroad stocks lost more than 60% of their value, and it would take the industry years to dig out.
That same September, a former railroad station agent from Minnesota renamed his struggling mail-order business.
He called it Sears, Roebuck and Co.
Now, Richard Sears never built a railroad. He didn’t have to. Instead, he used the overbuilt network left behind to ship watches… sewing machines… and eventually entire houses to families across the country. In 1906, Sears became the first major retail IPO in American history, and sales rose 125-fold to $50 million by the following year.
The men who built the railroads went broke. The man who applied them became a household name.
I bring this up because InvestorPlace Senior Analyst Eric Fry believes the AI boom is starting to split the same way.
On one side are the AI Builders. These are the chipmakers, data center firms, and frontier AI labs borrowing hundreds of billions of dollars to lay the “track” of the AI Revolution. Many of these stocks are priced to perfection.
On the other side are the AI Appliers: companies that never touch a “shovel.” These are companies like Sears that are using what others have built or are supplying them with products they can’t make for themselves.
Eric calls the coming split the AI Separation, and he expects it to accelerate on November 4, the morning after the midterms.
He explains exactly how it unfolds, and names his No. 1 AI Applier for free, in his new presentation. You can watch it here.
In the meantime, I’d like to discuss three AI Appliers that I’m recommending: companies that profit from the AI buildout without paying for it, at prices that still leave room for upside.
AI Applier Stock to Buy No. 1: Applying AI to Travel
In 2000, Eric recommended shares of Humana Inc. (HUM), a health insurance firm. Many experts were fearful that the internet would bypass the need for health insurers, and investors took the company’s declining earnings as evidence to get out.
But Eric’s healthcare pick would end up returning more than 10X. Rather than get replaced by the internet, Humana used the technology to lower costs, improve throughput, and mint small fortunes for its remaining investors.
A similar fear is now rippling through the software industry. People are becoming concerned that AI chatbots could replace vast swaths of the digital economy, and my first pick is a sold-off online travel agent that’s using AI, rather than getting replaced by it:
Booking Holdings Inc. (BKNG).
The owner of Booking.com, Agoda, Priceline, KAYAK, and OpenTable is the largest travel company in the world. It is also one of the most capital-efficient companies in existence, requiring just $0.35 billion of capital expenditure to maintain almost $30 billion of revenue.
The firm has faced growing fears that chatbots could replace Booking.com. After all, roughly a quarter of Americans now use AI to help plan trips. BKNG shares are down 25% since September.
But Booking.com is quite difficult for AI to replace.
- Inventory: 90% of its hotel bookings come from independent hotels (which no AI agent can contact individually).
- Payments: The company supports payments in 50+ currencies and has existing payment portals with its hotel clients.
- Quality Assurance: Booking through a dedicated site reduces the chance of something going wrong (i.e., a chatbot hallucinating and buying the wrong ticket).
That’s why both Google and OpenAI use Booking.com to help power their own agentic booking systems. BKNG already has the necessary systems in place.
In addition, Booking is using AI to keep growing its business. It is combining AI models with its own proprietary information to convert more searches into reservations, upsell more in each trip, and reduce the cost of serving customers. Analysts expect earnings per share to rise 15% this year and then accelerate to 18% in 2027 as these efforts pay off.
And so, the recent selloff creates an opportunity to buy shares of this blue-chip AI Applier. Shares are likely worth at least $200, and up to $220 in a bull case.
AI Applier Stock to Buy No. 2: A Riskier Retailer
Petco Health and Wellness Co. (WOOF) is one of the uglier names in retail. The bricks-and-mortar pet store chain is highly leveraged, relatively slow-growing, and has roughly 20% of its floated shares sold short.
The company is also facing fears of AI displacement. AI agents make it easier for shoppers to compare online prices and buy from the lowest-cost supplier. That could hurt Petco’s e-commerce operations by forcing the retailer to drop prices at Petco.com. Shares are down 33% in a year, and 78% since ChatGPT was launched in 2022.
Of course, concerns that chatbots will replace shopping websites aren’t limited to Petco. Online rival Chewy Inc. (CHWY) has fallen 38% in the past year – even more than Petco’s decline.
However, Petco is making moves to avoid getting further displaced by AI and other tech. First of all, the firm never had a particularly strong internet strategy for chatbots to displace. Analysts believe that just 15% of Petco’s sales come from its e-commerce website – significantly below the 21% to 25% range that other brick-and-mortar names like Target Corp. (TGT) and Walmart Inc. (WMT) command. In addition, Petco has moved toward in-person services at its stores, such as vet care and grooming. These services are far harder for digital chatbots to replace.
Moreover, Petco is using – applying – AI to make improvements to its finances.
For instance, Petco began using AI tech from a company called Constructor in 2024 to help predict what its online shoppers would buy. Digital conversions rose 13%. Then in February 2026, Petco selected a new AI-powered merchandising system to help improve sourcing and planning to help cut costs and stock its stores with better-selling products.
The results have been promising so far. At a September 14 investor conference, CEO Joel Anderson said, “We’re already starting to see efficiency, especially in customer service and chat.” He expects AI to play an even larger role in 2027 as the technology improves.
These AI benefits are also starting to show up in financial results. Earnings per share are expected to jump 20% this year to $0.23, and to rise another 10% next fiscal year. That will allow Petco to use its profits to pay down roughly $150 million per year in debt, adding roughly $0.45 per year to stock values.
So, even if the company does nothing from here, shares will be worth 18% more per year simply by converting debt back into equity. Strangely enough, AI could make Petco’s stock worth $4 per share or more.
Stock to Buy No. 3: The Energy Play
Last week, reports surfaced that Amazon.com Inc. (AMZN) was buying billions of dollars of Nvidia Corp. (NVDA) chips with no way to power them.
Internal emails showed Amazon expected to receive $5 billion worth of Nvidia AI server systems in August, followed by $3 billion more each following month – and many of the chips had nowhere to get plugged in.
Amazon joins a host of other data center companies that are facing electricity constraints. In fact, a recent study by Goldman Sachs estimates that 40% of all 2026 data center projects will get delayed into 2027 from a lack of electricity.
That’s why I want to reiterate one energy stock that I recommended here back in September:
Transocean Ltd. (RIG).
As I wrote then, the company is the world’s largest leaser of “floater” oil rigs (27 vessels) and owns another seven harsh-environment semisubmersibles. These platforms are used when ocean water is too deep to anchor regular rigs into the seabed.
Business is booming.
Energy companies are now looking beyond the Middle East for new sources of hydrocarbons. And they’re finding it in offshore fields in Brazil, West Africa, the Gulf of America, and more.
They are now turning to companies like Transocean to supply the drilling rigs for these ultra-deep sites.
Transocean has already seen revenues surge 40% in the past two years. No new drillships have been ordered since 2014, and a previously oversupplied market is now swinging into deficit. Industry analysts believe that high-end floaters have been fully contracted through late 2027, allowing Transocean to charge fat premiums for renting its ships and achieve utilization rates “well into the 90s,” according to its CEO.
Shares are already up 12% since I recommended Transocean on September 27. But the prospect of the AI Separation makes it an even more compelling stock. After all, the bankrupt railroads of the 1890s still needed fuel to deliver Richard Sears’ goods; AI data centers will find themselves in the same situation.
The Other Side of the Separation
The three stocks above are the “buy” side of the AI Separation. But every separation has two halves, and the “sell” part is worth watching too.
Consider Oracle Corp. (ORCL). Last November, Eric told his readers to exit their positions. At the time, the data center company was one of the most celebrated AI stocks on Wall Street. Oracle was inking 12-figure AI deals, including the ambitious $500 billion Stargate Project with OpenAI and SoftBank.
Eric saw something else.
He saw an increasingly indebted firm borrowing money for projects that had no guarantee of paying off. Worst of all, half of Oracle’s future business depended on a single profitless customer, OpenAI.
Oracle shares have since fallen more than 30%, and its bonds have been downgraded to one notch above junk.
That’s the Builder side of the AI Separation. These companies are acting like the railway magnates of the late 1800s: borrowing enormous sums of cash to build infrastructure that no one is sure will all be needed.
Plus, he also shows us his No. 1 AI Applier, including its name and ticker symbol. You don’t need to buy anything to get that recommendation.
Click here to watch Eric’s new presentation and get his No. 1 AI Applier stock pick for free.
I’ll see you back here next Sunday.
Thomas Yeung, CFA
Market Analyst, InvestorPlace
