Introduction
The article discusses the overlooked physical infrastructure that supports the artificial intelligence (AI) revolution, emphasizing that the demand for commodities like copper and natural gas is set to surge as AI technologies expand.
The Demand Shock
While investors focus on software and tech stocks, the real growth is happening in the physical commodities that power AI. The International Energy Agency predicts that global data center electricity consumption will nearly double by 2030, with natural gas expected to supply over 40% of this demand.
Copper: The Backbone of AI
Copper is highlighted as a critical component for AI infrastructure, necessary for data centers, cooling systems, and electrical grids. However, supply issues such as declining mine grades and geopolitical tensions threaten availability, prompting analysts like Lars Hansen to suggest that copper is becoming a strategic asset rather than just a cyclical commodity.
Goldman Sachs has raised its long-term copper price forecast to $15,000 per tonne, indicating a significant shift in market perception regarding copper's value.
Natural Gas and Energy Security
The article also addresses the geopolitical implications of energy supply, particularly concerning the Strait of Hormuz, a vital route for liquefied natural gas (LNG). Disruptions in LNG supply could lead to increased electricity costs, further impacting the operational costs of AI technologies.
Hansen warns that the market is beginning to recognize the importance of energy security, which could lead to explosive price increases in natural gas.
Valuation Signals
The current oil-to-natural-gas ratio suggests that natural gas is undervalued compared to oil. As this ratio compresses, it could indicate significant price increases for natural gas, especially in light of rising AI demand and potential supply disruptions.
Conclusion: Positioning for the Future
The article concludes with a call to action for investors to recognize the intertwined nature of AI, energy security, and commodity scarcity. It suggests that early positioning in copper and natural gas could yield substantial returns as the market adjusts to these emerging realities.