Power and resources opportunities remain despite volatility
CIO Daily Updates
From the studio:
From the studio:
Thought of the day
Thought of the day
Power and resources companies have not been spared by the recent market volatility stemming from tariff uncertainty and worries over AI-related demand and economic growth, with prominent stocks in the industrials and utilities sectors falling by 10-25% over the past two months. DeepSeek’s computationally efficient models sparked doubt over data center demand, while growth concerns have dampened optimism over the speed of electricity demand growth.
But while volatility is likely to persist amid uncertainty over the economic impact of the Trump administration’s trade policy, we maintain our conviction in the opportunities linked to our Power and resources theme. In fact, we see attractive entry points for select names following the recent valuation reset, as the end-market trends for power, electrification, and data center spending remain intact.
Electricity demand is set to accelerate in the coming years. Recent management comments from US power companies suggest that US electricity demand continues to accelerate and there is significant need to expand energy infrastructure. These include investments in electricity transmission, natural gas transmission, renewable power including solar and wind, and battery storage. Globally, the International Energy Association (IEA) forecasts demand for electricity to increase by 4% this year and next, the highest annual expansion since 2007, except for the post-pandemic rebound. We believe electricity consumption will continue to rise, driven by new technologies such as artificial intelligence, data centers, and the crypto sector, as well as by increased electrification across industries and households.
The shift toward electrification in transportation, industries, and households will require significant investments. Electric vehicles have grabbed headlines again in recent days, as China’s BYD announced a new charging system that it says is nearly as quick as refueling a gasoline car. The rise of electric vehicles is supportive for power and resources companies in many ways. Simply adding a single EV and a charger can increase a household’s electricity load by 40%. EVs themselves also include significantly more power electronics and six times more minerals by weight than conventional cars. Overall, we believe growing electrification needs linked to EVs, AI, and decarbonization look set to endure, and we estimate the electrification of the global economy will require around USD 3tr in annual investments by 2030.
Data center spending should continue to grow. The trajectory of data center capital spending has been a topic of debate since the emergence of low-cost large language models, but we have yet to see any evidence supporting slower data center capex. In fact, NVIDIA’s product roadmap suggests further growth in AI compute as frontier models are likely to be more computationally intensive. With a significant share of big tech’s capex likely dedicated to AI infrastructure, we believe AI data centers will continue to be an important driver of power demand. A recent study published by information provider Dell’Oro Group noted global data center capex is projected to surpass USD 1tr annually by 2029.
So, we continue to believe power and resources opportunities will be one of the major drivers in equity market performance in the coming years, and we like diversified exposure in stocks across the electrical equipment, materials, and utilities sectors. Investors able and willing to manage risks inherent in private markets can also consider opportunities in data center and energy transition infrastructure.
