An old economy sector may break out thanks to hyperscaler investment. Todd Gordon outlines how to play it

When investors think about the AI growth trade, their minds most likely go to semiconductors, hyperscalers, and even software. But there's another group that has been participating in the growth trade breakout, and just recently even showed outperformance, creating a quieter AI revolution in this "old economy" sector. The industrial sector, often viewed as cyclical and more of a value sector, is going through a re-rating as Wall Street is shifting its perception, believing the AI trade cannot continue without steel, turbines, power infrastructure and aerospace engines. Besides the AI infrastructure buildout, the heaviest industry component of Industrials is aerospace and defense at 27.24%. The Industrials ETF (XLI) is also getting a boost from increased defense spending. Technically speaking, the XLI is rallying, but also facing a key technical resistance level on the weekly chart which, if it fails to hold as resistance (price ceiling), increases our bullish conviction. The March 2020 to Nov 2021 rally traveled 126%, which then set up a pullback in 2022. The next rally began in October 2022 and is just a stone's throw away from another 126% measured move at $187. Last trade in XLI was $180.50. Above $187 and we'll consider the measured move, equidistant resistance level as broken and we should be able to break into the $200's. …