5 minute read

While tech companies are racing to build the digital future, they're running into some surprisingly analogue obstacles. These aren't software bugs or coding challenges – they're physical bottlenecks in commodities, power, and talent that could slow AI's march forward.

But that’s good news for investors: these pain points are creating opportunities. Here’s what Capital Group, the $2.3 trillion asset manager, has identified as two of the biggest bottlenecks.

1. The copper crunch

AI needs data centers – those warehouses full of servers – and those need something more basic: copper. Lots of it. Each data center needs tons of copper for its servers, cooling systems, and power infrastructure. And AI companies aren't the only ones hunting for this metal: electric vehicles, solar and wind farms, and power grids all need copper too.

JPMorgan estimates we'll be short 6 million tons by 2030 – about 27% of current annual production. This supply-demand imbalance is likely to drive up prices, and could lead to a possible copper “supercycle” (more on that below), benefiting mining companies.

2. The power puzzle

AI's appetite for electricity is surging. By 2030, data centers could consume 9% of all US power output – more than double their current usage.

And since many tech companies have pledged to reach net-zero emissions, that creates an interesting dynamic: they need more power, but it needs to be clean. This is driving next-generation nuclear technology, particularly "small modular reactors," and accelerating the green energy transition.

What’s the takeaway here?

These bottlenecks won't be solved overnight, which could mean a longer but more sustainable AI adoption curve. This creates opportunities in the picks-and-shovels businesses that make AI possible. Here are just a few ways to get involved:

• For targeted exposure, our Flexible Portfolios let you customise your allocation to sectors like mining, industrials, and utilities – areas that could benefit from AI's physical demands.
• Our Environment and Cleantech portfolio lets you invest in the clean energy transition that AI is accelerating, including the nuclear industry.
• For diversified exposure across the AI value chain itself, our Technology Enablers portfolio invests in companies at the forefront.

(For a deeper dive, check out our latest CIO Insights: What’s next for investing in AI?)

 📰 In Other News: Europe's economic engine is sputtering

The latest data from Europe doesn’t paint a pretty picture. The region's business activity dropped more than expected in November, pointing to the possibility that the overall economy could shrink this quarter.

The Eurozone's Purchasing Managers' Index (PMI) – which measures business activity across the region – fell to 48.1, its lowest level in ten months. Any reading below 50 signals a decline in activity. And the details aren't encouraging: manufacturing fell further into contraction territory at 45.2, while services ended two months of expansion and dipped to 49.2.

As the world's third-largest economy after the US and China, the Eurozone's economic health has global implications. The region's struggles come at a challenging time, squeezed between ongoing geopolitical tensions and China's own slowdown, which has reduced export demand.

While Europe faces its challenges, remember that market prices often already reflect widely-known concerns. And there's a silver lining to the gloomy data: the European Central Bank (ECB) is now more likely to cut interest rates significantly – possibly by half a percentage point. That would infuse the region with the kind of economic stimulus that comes with lower borrowing costs.

These articles were written in collaboration with Finimize.

📖 A Little Context: Copper supercycles

For its supposed ability to predict trends, copper has earned a nickname among traders: “Dr. Copper”, with a PhD in economics. It's a commodity used in so many industries that its price often signals where the economy is heading. And the metal has gone through several supercycles – decades-long periods of high prices – driven by major transformations. The last one came with China's rapid industrialisation in the early 2000s. Now, with both the clean energy transition and AI boom, some analysts believe it's at the start of a new supercycle.

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