China’s investors pivot toward AI infrastructure

Chinese investors have shifted their focus to metal and utility companies after having long favored the world’s largest chipmakers. These investors, seeking a lead in the artificial intelligence industry, argue that the firms are crucial in driving the industry forward.

This shift to investing in the supply chain, from power generators to materials that power data centers, indicates growing concern among investors regarding the price hikes on pure AI stocks.

On the other hand, analysts expressed their belief that firms backing this tech sector present a more budget-friendly approach to get involved in the leading trend this year. 

The effects of this shift have already begun to be visible in the market. This was discovered after reports from sources indicated that an index monitoring Chinese energy stocks rose 10% in October, bolstering predictions of outperforming the CSI 300 Index for a second consecutive month. Notably, seven of the last month’s top ten gainers on this benchmark are connected to AI infrastructure. 

No power, no AI

On October 31, BofA Securities analysts, including Matty Zhao, released a statement highlighting “No power, no AI.” This statement pointed out their argument that China is privileged over Europe, the US, and Southeast Asia. This is due to the country’s substantial generation capacity, lower electricity expenses, and abundant renewable energy resources.

Following this power-abundant environment, BofA Securities anticipated that approximately one-third of China’s total spending on AI would be allocated to constructing necessary facilities, with considerable funds allocated to metals, power, and cooling systems by 2030.

Reliable sources noted that some of the main beneficiaries of this growth are power equipment producers, who are greatly benefiting as data centers require a more substantial electricity supply. 

UBS Group AG also shared its recent prediction concerning the situation. The company has increased its prediction for China’s power demand growth to 8% by 2028-2030, outlining exports, data centers, and electrification as crucial components. 

During a briefing on Wednesday this week, Ken Liu, who leads Greater China energy transition and renewables research, mentioned that they favor local power equipment makers. According to Liu, the government intends to improve energy infrastructure investment in its upcoming five-year plan. 

Meanwhile, recent reports revealed that shares of solar energy equipment company CSI Solar Co. have soared by 31% this month. In comparison, those of electrical component manufacturer TBEA Co. have increased by almost 21% during the same time. Contrastingly, the CSI 300 index has remained unchanged.

However, even with this increase, reports from sources pointed out that the CSI 300 Energy Index has a forward price-to-earnings ratio of approximately 13 for the next year. This ratio is significantly lower than the technology sector’s ratio of 34 within the same index.

For metals used in building data centers and AI facilities, such as those in energy systems and servers, analysts have discovered that they are once again capturing the spotlight. This was after their prices had escalated, and many investors began to view the metals as a viable economic investment in the AI boom. 

Data centers drive metal demand in China 

BofA Securities mentioned that data centers are emerging as a major driver of copper demand in China. Following this discovery, they forecast a 20% average annual increase in copper consumption at these facilities until 2030. 

Reports also indicated that the brokerage predicted that growth in aluminum stocks would remain robust. At this time, sources with knowledge about the matter noted that Aluminum Corp. of China Ltd. was ranked among the top tiers on the CSI 300 Index and had recorded a gain of approximately 35% over the past month. Similarly, Shandong Nanshan Aluminum Co. and Yunnan Aluminum Co. have each gained about 30%.

These results prompted analysts to predict that the demand for backup emergency equipment will also increase as data centers aim to maintain power supply during outages.

“This area is expected to significantly benefit A-share listed companies in the future,” Yishu Yan, a utilities analyst at UBS Securities, said.

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