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There is so much negativity about AI right now that, as a contrarian, I’m even more bullish on it than before. Having been on the bleeding edge of tech since I was a teenager – OG’ing the computer games industry – I’ve witnessed several transformative technologies emerge. Yet nothing, not multiplayer games, multimedia, the internet, or mobile phones, has come close to the stunning potential and disruption that AI will unleash.
My early conclusions about what would happen once AI hit the mainstream are unfolding exactly as expected. The key one is this:
AI will boil the oceans.
Interpret that metaphor as you wish, but if you think the magnitude is exaggerated, you are underestimating what comes next.
Here are the foundational points:
- Artificial Intelligence is an incredibly powerful tool that amplifies human capability.
- There is no prize for having less intelligence.
- Demand for intelligence is effectively infinite.
- Intelligence = energy + material science.
The first three points suggest a geometric increase in demand for all things AI. Point four implies an equally geometric surge in demand for energy and raw materials.
My summary:
The hard commodities required for AI will become luxuries.
In other words, the price of those commodities is going way up.
Right now, as massive AI infrastructure projects break ground, it’s clear that copper is heading toward severe undersupply. Prices will twist and jerk and eventually go vertical – just as precious metals already have. Energy prices will follow, a conclusion only just dawning on the broader market. AI will consume all the electricity available to it. This is why nuclear power has been summoned back from exile. You simply cannot win the AI war without enormous amounts of electricity.
Yet the penny hasn’t dropped for many – perhaps most. It’s dropped for the U.S. administration, but not in Europe. It’s dropped in China. Very few people in London seem to be listening when Elon Musk says AI will consume all the energy on Earth, plus the solar system, and more. And not many here seem to be thinking through the implications of Bezos launching server farms into space.
This “crazy talk” is coming from self-made billionaires who repeatedly proved the establishment wrong by being so far ahead in technology that few believed them – until they delivered. Whether or not they are fully right, being even half right means everything gets turned upside down (for the better, in my view).
The hard commodities needed for the AI buildout are going to be hoovered up. Copper is next. Then what?
My focus is on aluminum and energy.
Aluminum is abundant and scalable, and it will be the first major substitute for copper. But it is fundamentally energy-bound. Aluminum doesn’t want to exist as a metal – its natural state is oxide – and it takes a massive amount of energy to force it into shiny metallic form.
So what comes first: a spike in the price of energy or a spike in the price of aluminum?
Since aluminum is plentiful and energy prices haven’t yet gone vertical, I hesitate. But the following chart makes me wonder how long it will be before I start building a position:
The aluminum chart looks promising
Credit: ADVFN
If aluminum was nearly $4,000/ton in 2022, it can get back there quickly.
I’m positioning in aluminum and energy because once AI farms are built and switched on, a major supply shock is coming – and it will drag hard commodities into a maelstrom with prices getting very spicy indeed.