Investors looking to capitalize on the artificial intelligence boom need to consider some of the fundamental building blocks of the economy, according to Bank of America. Investment and ETF strategist Jared Woodard said in a note to clients last week that the market is underestimating the changes driven by the energy demands of AI programs. “The winners of 'Round One' driven by new technology demands, such as data centers, hyperscalers and chip makers, are already well capitalized,” Woodard said. “Further investment in these beneficiaries should be conditional on a realistic path to expanding electricity supply. In other words, the big new digital darlings may still win, but The bloody old real world may have to win first.'' The next round may already be underway. Utility stocks have started to rise in May, with the Utilities Select Sector SPDR Fund (XLU) up 8% since the beginning of the month. The move was fueled by the fact that utility stocks are cheaper than the rest of the market and have long underperformed, but the outlook for increased energy demand also appears to be a factor. XLU 1M Mountain Utility stocks soared in May. Woodard identified other ETFs and stocks that could benefit from increased energy consumption and grid investment. One is the Direxion Auspis Broad Commodities Strategy ETF (COM). With a net expense ratio of 0.70%, this fund is more expensive than many stock-focused ETFs, but it has actively managed exposure to 12 different commodities, from soybeans to oil to copper. It offers. It's up about 8% this year. Bank of America also rates mining stock Freeport-McMoRan a buy, and the stock has already risen more than 27% since the beginning of the year. “Without real assets, progress is impossible. Our strategists expect metals like copper to remain in the red through 2026,” Bank of America said in a note. “Miners should retain pricing power given their investment and limited production capacity.” Companies that help produce energy sources could also be an area to find winners. VanEck Oil Services ETF (OIH) is the fund Woodard highlighted. Major holdings include SLB and Halliburton. Uranium may become even more important as a fuel source in the coming years. Bank of America is positive on its 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 rising demand. A 10% nuclear ‘increase’ would add 10 gigawatts of energy supply without building new buildings.” “Possible,” the memo said. URA's net expense ratio is 0.69%, up about 18% since the beginning of the year. OIH is down 0.35% and is up about 6% since the beginning of the year. Bank of America doesn't include utility ETFs in this bond, but it does give Xcel Energy a buy rating among those stocks. —CNBC's Michael Bloom contributed reporting.
