Stocks and ETFs that could benefit from AI’s insatiable need for energy

Investors looking for the next way to profit from the artificial intelligence boom should consider some of the basics of the economy, according to Bank of America. Jared Woodard, an investment and ETF strategist, said in a note to clients last week that the market is underestimating the changes caused by the energy demands of AI programs. “First-round winners from new technology demand, such as data centers, hyperscalers and chipmakers, are already well-owned,” Woodard said. “Additional investments in these beneficiaries should be contingent on a realistic path to expanding electricity supply. In other words, the new big digital darlings may still win, but the old real world may have to win first.” The transition to the next cycle may have already begun. Utility stocks began to rebound in May, with the Utilities Select Sector SPDR Fund (XLU) up 8% month to date. The fact that utility stocks are cheaper than the rest of the market and have long underperformed has helped fuel this trend, but the prospect of increased energy demand also appears to have been a factor. Shares of XLU 1M Mountain Utilities rose sharply in May. Woodard identified other ETFs and stocks that could benefit from increased energy consumption and investments in the power grid. One is the Direxion Auspice Broad Commodity Strategy ETF (COM). This fund is more expensive than many stock-focused ETFs, with a net expense ratio of 0.70%, but offers actively managed exposure to 12 different commodities, from soybeans to oil to copper. That’s an increase of about 8% this year. Bank of America also has a buy rating on mining stock Freeport-McMoRan, which is already up more than 27% year to date. “Progress is not possible without real assets. Our strategists expect metals like copper to fall into massive deficits through 2026. Mining companies are expected to retain their pricing power given their limited capacity after a decade of underinvestment,” the Bank of America note said. Companies that help produce energy sources could be another area to find winners. The VanEck Oil Services ETF (OIH) is a fund highlighted by Woodard. Its main holdings include SLB and Halliburton. Uranium could become a more important fuel source in coming years. Bank of America is positive on the Global X Uranium ETF (URA), which provides exposure to both physical uranium and miners. “Uranium is in its third secular bull market as global supply cannot keep up with growing demand. A 10% nuclear ‘ramp-up’ could add 10 GW of energy supply without any new buildings,” it says Note. URA has a net expense ratio of 0.69% and is up about 18% year to date. OIH is cheaper at 0.35% and is up about 6% for the year. Bank of America didn’t include any utility ETFs in the rating, but the firm has a buy rating on Xcel Energy, among those stocks. — CNBC’s Michael Bloom contributed reporting.

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