The Five Forces Driving the AI Boom
One question weighs heavily on the artificial-intelligence ("AI") investing thesis...
AI spending is growing... Citigroup expects it will cross $2.8 trillion by 2029. With all this capital expenditure, many investors are starting to wonder... Where is the return on investment ("ROI")?
But according to Luke Lango, it doesn't matter...
Luke is a growth-focused equities analyst at InvestorPlace. He's known for his expertise in tech and his "big picture" approach to markets...
At this year's Stansberry Conference, he answered the question above in an unexpected way...
When you listen to the people actually spending all this money talk about it, they're looking at [AI] as a Manhattan Project. What was the ROI of the atomic bomb? There was no financial ROI on that, but the ROI was 80 years of a world controlled by [and] influenced by Western values, our way of life. This is that race, even bigger.
In short, Luke sees AI as an existential battle for the Western way of life. Until that fight is resolved, AI will continue to drive the market.
But Luke says there's still plenty of money to be made on the AI boom. And he identifies five key "forces" that'll drive the next phase of the AI rally...
Where to Invest in the AI Rally
First is what Luke calls the Bazooka. This refers to tech giants' capital expenditures on AI...
Today, the most powerful companies in the world are pouring trillions of dollars into data centers. Luke likens the spending to a "bazooka of cash" and urges investors to position themselves in the blast radius. To take advantage, he suggests buying power providers, security businesses, and HVAC companies.
Luke calls the next force the Crunch. This driver lies in the energy markets...
Data centers require tons of power. But today, the U.S. lacks the energy to keep them running.
In the future, Luke projects there will be a small modular nuclear reactor in every data center across the U.S. This is highly bullish for independent energy suppliers and nuclear power companies, providing a second great way to profit on the AI thesis.
Our third force is Resources. That's where the White House is getting involved...
In order to build AI at scale, we need rare earth metals. And although these resources are abundant in the U.S., we lack the national supply chains to mine them...
The U.S. must push to onshore or "friend-shore" these processes. And that's likely to require an emergency infusion of cash from Uncle Sam...
Today, the U.S. government has a stake in three rare earth miners – MP Materials (MP), Lithium Americas (LAC), and Trilogy Metals (TMQ). According to Luke, more resource and mining companies are likely to join the government's portfolio soon. In his view, this is the most important force of the five today.
The fourth profit force is Application. This refers to the software and service companies that will put together AI applications for end users.
But Luke urges caution when it comes to the application layer... because AI is starting to make software redundant. Chatbots can outdo many of the apps we use today. So to profit from this force, you need to find high-moat companies. One example is Palantir Technologies (PLTR), which deals in military and government contracts that consumer chatbots just can't access.
Finally, we have the Embodiment... in other words, physical AI.
This refers to things like humanoid robots, self-driving cars, and warehouse automation. China is currently leading the physical AI front. But the U.S. has a few contenders in the field... like Google's Waymo self-driving car and Tesla's Optimus humanoid robot.
Luke says these five forces comprise the chief profit engines of AI. Savvy investors will take advantage of these tailwinds as the AI boom continues.
Good investing,
Sean Michael Cummings
Editor's note: Hundreds of thousands of people are reaping the rewards of new technologies like AI. And according to our colleague Whitney Tilson, AI can now make you money even more effectively than whole teams of Wall Street experts. That's why he's revealing the one system that can help you find the most profitable part of the market at any time – and put the power of AI in your hands.
Further Reading
"Nations are scrambling to secure their positions in the AI-driven future," Joel Litman writes. The U.S. has a long history of tech leadership. And as AI reshapes entire industries, the U.S. is setting the stage for worldwide AI dominance.
"The U.S. is building data centers at a breakneck pace," Josh Baylin says. Electricity demand is already straining the grid – and it will only grow as the AI boom speeds up. That promises massive opportunity for three companies that are keeping the lights on for today's data centers.
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
American Express (AXP)... financial giant
Banco de Chile (BCH)... financial services
Cencora (COR)... pharmaceuticals
McKesson (MCK)... health care giant
Alphabet (GOOGL)... tech "World Dominator"
Intel (INTC)... chipmaker
Pure Storage (PSTG)... data storage
Zscaler (ZS)... cloud security
Ciena (CIEN)... telecom equipment
Nokia (NOK)... networking tech
Grand Canyon Education (LOPE)... education services
Warner Bros. Discovery (WBD)... entertainment
Ralph Lauren (RL)... iconic apparel
3M (MMM)... manufacturing
TE Connectivity (TEL)... industrial "picks and shovels"
HF Sinclair (DINO)... oil refinery
RTX (RTX)... "offense" contractor
NEW LOWS OF NOTE LAST WEEK
Not many... It's a bull market, you know!