Why is AI Increasing the Price of Copper?
Now, AI data centers have emerged as a major new source of copper demand. How significant is this driver compared to traditional demand sources like EVs and renewable energy? And how should investors think about AI's impact on long-term copper prices?
It seems like every 25 years or so, we undergo these large generational societal changes in the way the economy moves. About every 25 years we see the demand for copper doubles. We're now at the point where we're seeing AI, EVs, and renewables all working together to fuel that demand.
AI becomes important because what we see is a lot of increased investment. Building out these large data centers and the infrastructure that's needed to connect them to the grid. We often have to build out clean energy sources because that's where these hyperscalers have mandates around sourcing their energy. All of these are very copper intensive endeavors, and that's an area where we're seeing significant demand growth come from as it relates to AI.
From an investor perspective, when you start looking at large tech stocks, whether it's the hyperscalers or Tesla, they make up about 35% of the S&P 500. A lot of the flows in copper miners haven't really started to take hold because investors have been looking at these large tech stocks as a way to play AI. But what we're seeing is investors are starting to move to copper because they can get exposure to the AI theme because copper is so important to it.
It's not in a way that you're investing in these tech heavy indexes or stocks. Investing in copper miners is also providing a level of diversification, and also the growth characteristics that many are seeing when they're looking for AI investments.
