Chart of the Week - Energies
AI and Future Energy Requirements
Nvidia and these AI stocks may be overvalued here. I don’t know. But even if the stocks are overvalued that does not mean there is going to be an end to the investments being made into AI by the largest, most profitable companies in the history of the planet any time soon. This investment clearly means there will be an increase in the data center world, which must lead to an increase in the amount of energy used. These companies are investing in nuclear energy as a way to combat this issue, but even if successful, these investments will take many years to come into fruition. So in the meantime, there must be some bridge source to produce the energy needed. The most efficient and most likely source for this is Natural Gas.
The future energy needs due to AI is not a new story. It was just last spring when this story started getting a lot of press as people were looking for what else to buy in the AI revolution besides Nvidia. This was when Copper topped as the big idea was Copper demand was going to skyrocket as more power plants would have to be built to meet this need. Short Copper ended up being one of CMR’s best trades in 2024.
So, as a contrarian, how can I want to believe this story if its already out there so therefore should be discounted in the market prices? I think that is actually a fair point and one that worries me. But, if we look at the positioning in both NatGas and Heating Oil, its hard to argue at this point that the story is in fact “discounted in”. If I found Speculators max long the energy contracts I would certainly be taking the other side of this idea and would be saying the idea is fully if not overly discounted in. But as of now, in the energy futures contracts, it certainly is not.
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