The AI Arms Race Is in Full Effect

“It’s an AI arms race,” Bank of America strategists Savita Subramanian and Ohsung Kwon recently declared in a note to investors. Whether you see the impact in your day-to-day life yet or not, the future will be dominated by artificial intelligence (AI) technology and your investment positioning needs to reflect this.

This isn’t a call to pour all of your capital into AI-focused mega-caps like NVIDIA and Alphabet/Google. Chances are, if you have any exposure to stock market index funds – be it through employers, money managers, or just self-directed funds – you’re already heavily weighted toward these AI-tech giants.

Regardless, AI investments are unavoidable at this point. EY chief economist Greg Daco knows that businesses are ramping up their AI spending now to increase their productivity, and productivity growth “is the holy grail in economics.”

This certainly doesn’t mean AI will solve everyone’s problems. The middle class is still stuck with persistent inflation and stagnant wage growth, and homeownership remains out of reach for too many Americans in 2024.

Shockingly, achieving the American Dream nowadays – a house in the suburbs, two children, and a car in the driveway – will cost you $4.4 million in your lifetime. AI won’t solve this, though it will boost the earnings results of businesses in certain sectors.

Either way, sitting on a massive pile of cash won’t get you any closer to achieving the American Dream. You’ll need to invest in growth-focused assets in the Era of AI, and this will require some outside-the-box thinking.

Some things won’t change irrespective of the advent of AI. For one thing, gold will remain an essential holding through the rest of the 2020s. Independent Institute economist Judy Shelton reminds us, “Gold is kind of a surrogate for the real economy, and it represents commodities but also that traditional role of money you can trust.”

Institutional investors and central banks already knew this, but now retail investors are rushing into gold as well. Amazingly, Costco currently rakes in $200 million every month in gold bar sales, and the retailer also started selling platinum bars to customers.

Evidently, investors are catching on to the powerful pro-gold argument. “It’s a meaningful unit of account. It works across borders… It has universal value, and it’s highly recognized,” Shelton observes.

Yet, gold and cash won’t be enough in the Age of AI. Data centers for AI applications will require massive throughput of electricity, and while your electric bills will probably go up in the near future, you can potentially recoup those losses through your forward-looking investments.

Surely, it’s not a mere coincidence that John Ketchum, CEO of utilities giant NextEra Energy, is “very interested” in restarting the Duane Arnold nuclear plant in Iowa. This comes just a month after Constellation Energy disclosed its plans to restart the Three Mile Island nuclear plant in Pennsylvania.

Ketchum connected the dots between surging AI-technology demand and the potential to scale out the capacity for nuclear power generation. “Obviously, it goes without saying, there’s very strong interest from customers, really data center customers in particular around that site,” he clarified.

Meanwhile, nuclear technology company Holtec International Palisades is preparing for a nuclear power plant in Michigan to be up and running next year. For uranium stocks, the implications are obvious as there’s a nuclear-energy “gold rush” that’s about to get very crowded, very soon.

Then there’s copper, the red metal that too many investors tend to overlook. You could leave a whole lot of money on the table if you disregard copper when AI-technology infrastructure demand ramps up.

Believe it or not, copper demand linked to AI and data centers could add up to one million metric tons by 2030. Bear in mind, many components of data centers, power cables, electrical connectors, and heat exchangers, will require copper. Yet, copper is getting harder to get out of the ground lately.

Major copper discoveries are few and far between, and this trend won’t end anytime soon. And you certainly know what happens to the price of a commodity when the demand surges but the supply is constrained.

Just think about how investors rushed into NVIDIA stock because it was a picks-and-shovels play on the emerging AI gold rush a couple of years ago. That train already left the station, but the crowds haven’t fully discovered the bullish case for uranium and copper yet.

They’ll figure it out, but you don’t have to wait for that to happen. Just as Costco’s shoppers are suddenly discovering gold (as if it hadn’t already existed for thousands of years) as a store of wealth, AI-adjacent commodities will gain tremendous value soon – and you can take action now, or hesitate, risk the opportunity costs, and wonder why you didn’t make a move when you had the chance.