Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Morgan Stanley analyst Andrew Percoco believes artificial intelligence (AI)-related data centre growth will create profit expansion for specific power generators,
“MS Research Analyst Andrew Percoco believes that there is a significant mismatch between the rapid growth of GenAI power needs (notwithstanding continued efficiency improvements) and the slow growth in power grid infrastructure. Furthermore, Andrew highlights that given the large amount of capital deployed on these new, very large data centers, and given the rapid pace of GenAI chip innovation, there is tremendous value for data center owners to connect to a power source as quickly as possible. As a result, Andrew believes that data centers will increasingly resort to onsite power generation to solve for this “time-to-power” constraint, as it’s becoming commonly known in the industry, which opens up a significant growth TAM [total addressable market] for distributed power providers. Andrew estimates a 17 GW data center TAM for on-site power solutions through 2027 (4.3 GW annually). He notes that solid oxide fuel cells are uniquely positioned to serve this market and Bloom Energy Corp. BE-N is his favorite way to play this theme. Andrew points out that BE currently deploys 300 MW annually (15% to data centers). At just 5% market share of his 4.3 GW annual TAM, Andrew could see significant upside to his estimates. Andrew notes that 15 per cent of Bloom’s annual revenue is already sourced from data center customers, however, he expects the company to announce at least one data center deal this year, which Andrew expects would serve as a significant positive catalyst for the stock. BE is currently trading at 17.5 times/10.3 times Andrew’s 2025/2026 adj. EBITDA estimate, which in his view vastly undervalues the growth and margin improvement opportunity that Andrew expects to materialize for the company”
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Strategists at RBC Capital Markets have changes to their global sector weighting recommendations,
“Four big things you need to know: First, optimism on performance persists for most sectors and coverage regions, despite the challenges associated with higher interest rates. Second, our U.S. & UK election scenario analysis suggests politics matter to certain sectors and industries, but that we shouldn’t view these events as the main drivers of equity markets in coming months. Third, within the U.S. (and S&P 500 specifically) we are upgrading Materials to overweight, downgrading Health Care to market weight, and downgrading REITs to underweight. Fourth, outside of the US, performance outlooks in our survey are most constructive in Canada and Europe and least constructive in Australia … Across all four of the core outlook questions that we asked [RBC analysts], Energy has the highest average score at the global level, driven by the most favorable assessment of demand … Regionally, valuations are seen as better in Europe and Canada than the US or Australia. At the sector level, valuations were seen as most attractive at the global level for Materials, Utilities, and Financials, and least compelling for Consumer Staples”
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Citi strategist Max Layton sees more upside for copper, driven by speculative positioning,
“We highlight that pure-play copper equities, which are long duration assets whose prices don’t converge to a physical market like commodities, have moved up to price $10.5k-12.5k/t copper into perpetuity, suggesting that there is further room for forward looking investors to take the commodity price higher … The potential scale of increase in net speculative copper positioning once developed market growth bottoms and cyclical demand sentiment turns would dwarf the physical market balances and drive prices beyond $12k/t. In our base case this peaks by late-2025/early 2026 … Our base case sees a cyclical demand rebound by 2025/2026 (after three years of contraction) driving total copper demand growth well above trend when compounded with decarbonisation-related consumption growth. Al-driven datacentre demand growth over the next few years is an additional upside kicker, but is difficult to accurately quantify. Our bull case for demand assumes no contraction in cyclical copper demand growth in 2024 and a more aggressive medium term path for EV penetration rates and renewables build-out aligned with the COP 28 goal to triple global renewable by 2030. This would drive total copper demand growth well above trend”
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Diversion: “Weight Loss Drug Users Are Giving Up Their Vices” – Gizmodo
Source: theglobeandmail.com
