The fever for artificial intelligence has turned chip manufacturers into the big players on Wall Street. However, there are a much less visible resource that could end up being just as decisive in sustaining that revolution: copper.
That is the starting point of one of the latest analyzes of Seeking Alphawhich maintains that the real bottleneck of artificial intelligence will not only be in semiconductors, but also in the ability to supply one of the most used metals to transport electricity.
Under that premise, its quantitative team identifies three companies especially well positioned to take advantage of this structural trend: Glencore, Lundin Mining and Hudbay Minerals. AI NEEDS MUCH MORE THAN CHIPS The thesis of the report is based on a simple idea. Artificial intelligence consumes enormous amounts of electricity and, to transport it, Copper is practically irreplaceable thanks to its high conductivity, durability and adaptability.
As explained Steven Cresshead of Quantitative Strategies at Seeking Alpha, the growth of data centers dedicated to AI has added a new demand engine that joins others already knownsuch as the electrification of the economy, the energy transition, economic development or increased defense spending. «Copper is essential to power data centers«summarizes the analyst. The forecasts used in the study illustrate the magnitude of the challenge. Global data center capacity could almost double by 2030 and the spending of large cloud service providers would exceed one trillion dollars in 2027, with a very relevant part destined for new infrastructures for artificial intelligence. A DEFICIT THAT COULD GO GREATER Seeking Alpha reminds that a single large-scale AI data center can consume more than three times the copper used by a conventional installation. If we add to this the expected growth of model training, the expansion of cloud computing, robotics or autonomous vehicles, pressure on supply could intensify over the next few years. In fact, the report cites estimates from S&P Global that The annual copper deficit could reach 10 million tons in 2040nearly a quarter of the demand forecast for that year. THREE BETS TO TAKE ADVANTAGE OF THE TREND With this background scenario, Seeking Alpha filters the companies in the sector using its quantitative ratings system, which evaluates more than a hundred metrics related to valuation, growth, profitability, market momentum and earnings revisions. The goal is to find companies that combine high exposure to the copper boom with solid fundamentals. The first choice is Glencoreto which the model assigns a rating of ‘strong buy’. The report highlights its status as one of the world’s largest producers of copper and its additional exposure to other strategic metals, in addition to noting that the increase in production and Valuations considered attractive support the investment thesis. The second company is Lundin Miningwhose activity increasingly depends on copper, which already represents 85% of its income compared to the 63% recorded in 2022. Seeking Alpha considers that the recent correction offers a entry opportunity and highlights both revenue growth and improved profit forecasts.
The third bet is Hudbay Mineralsa medium-sized producer with assets in the United States, Canada and Peru. The analysis focuses on its record first quarter results, the improvement of its growth forecasts and the expansion potential of its Copper World project in Arizona. THE RED METAL ENTERS THE AI DEBATE The analysis concludes that copper is at the meeting point of several long-term structural trends. «Producers with quality assets and long useful lives are well positioned to benefit from these tailwinds«, maintains Cress. In a market obsessed with identifying the next winner of artificial intelligence, Seeking Alpha’s proposal directs its gaze towards a much less media segment. Because, in the end, Algorithms need chips, but chips also need electricity. And electricity, copper.
