When we think about the AI boom, our attention often turns to companies like Nvidia or model developers.

But behind every data center are factories producing cooling systems, electrical equipment, chips, cables, generators, and other components.

These industrial companies have become targets for investors, too.

According to a report published by Private Equity Stakeholder Project, defense-related companies accounted for about 29% of the industrial companies acquired by private equity funds in the first half of 2026, while another 29% were companies that supply components for data centers or incorporate AI into their products. Private equity funds also acquired more than 170 U.S. companies with over 500 employees each during the same period. But why are investment funds interested in factories now?

What is private equity, anyway?

Private equity is different from buying a stock on the market.

Rather than owning a small stake in a publicly traded company, a fund typically buys a controlling stake or the entire company, then tries to increase its value before selling it several years later.

That increase may come from expanding sales, improving operations, acquiring competitors, cutting costs, or benefiting from growth in the sector the company operates in.

So a fund typically asks a simple question:

Can we buy this company today and sell it later for more?

That makes sectors attracting massive investment especially appealing.

Why defense and AI?

Because capital tends to flow toward areas where demand is expected to be sustained and growing.

New data centers need electricity, cooling, equipment, networks, chips, and entire industrial facilities.

Defense spending, in turn, requires factories, supply chains, components, and additional production capacity.

So investors don’t need to buy an AI company directly to benefit from the boom.

They can buy the company that makes the equipment it needs.

It’s like a gold rush: the best investment isn’t necessarily in searching for gold itself. Those who sell the equipment prospectors need can benefit, too.

The report’s data show that more than half of the industrial acquisitions it examined in the first half of 2026 were tied to defense, data centers, or AI.

Where does debt come in?

This is where an important concept called a leveraged buyout comes in.

Suppose a fund wants to buy a company worth one billion riyals.

Instead of paying the full billion with investors’ money, it might use, say, 400 million of its own capital and finance the rest of the deal with debt.

If the company’s value later rises and some of the debt is repaid, the return on the 400 million the fund invested could be very large.

In other words:

Debt lets a fund take control of a large asset using less capital.

But this mechanism works both ways.

If the company grows, leverage can amplify returns.

If earnings decline, interest and debt payments are still due, so losses can be amplified as well.

Why do industrial companies suit this strategy?

Some industrial companies have long-term contracts, tangible assets, and relatively predictable cash flows.

In some cases, these characteristics make them suitable for debt financing.

But it varies from company to company.

A factory that depends on a single customer or operates in a highly volatile market may find it harder to service its debt if orders decline.

That’s why the PESP report—which comes from an organization critical of some private equity practices—raised concerns about the impact of rising debt on companies and workers. These risks should be considered separately from the data itself: the outcome ultimately depends on the amount of debt, the company’s quality, and how the new owner runs the business.

Capital follows the boom’s infrastructure

What stands out about the current AI wave is that it is changing more than just the tech sector.

It is driving investment in electricity, industrial real estate, data centers, semiconductors, equipment, and cooling—and, in turn, attracting different kinds of capital.

This points to a broader investment principle:

When a new technology emerges, money doesn’t flow only to the technology itself, but to an entire chain of companies needed to build and operate it.

That’s why tracking private equity activity may help us understand where investors expect future demand to emerge.

Money isn’t chasing AI alone; it’s also chasing the factories that will build the infrastructure AI needs.