Surging Power Demand
US stock futures rose on Monday as investors look for new catalysts ahead of the first trading day of June.
All three major indexes posted strong gains in May, with the Nasdaq Composite rising 6.9%, its best month since November 2023.
Those moves came as technology and other growth stocks continued to rally on strong earnings and enthusiasm over artificial intelligence.
Meanwhile, the major averages came under pressure towards the end of May as solid US economic data and hawkish remarks from Federal Reserve officials dented sentiment around interest rate cuts.
Investors now look ahead to more economic reports this week including manufacturing data on Monday and the monthly jobs report on Friday to guide the outlook further.
NVDA is up 130% year-to-date and leaves no doubt that there is an AI surge underway.
As of Friday’s close, Nvidia represented 6.3% of the S&P 500 market cap weighted index and is the second largest holding in the index behind Microsoft. In the equally weighted S&P 500 index (RSP), it has just a 0.26% weighting. It has no representation in the Dow Jones Industrial Average.
The chart above shows the market cap weighted S&P 500 is up 10% year-to-date versus the equally weighted S&P 500 advance of 5.5% and the Dow Jones Industrial Average return of about 2.6%.
If you own the S&P 500 market cap weighted index, you should not feel that you have missed benefiting from the AI surge.
Goldman Sachs estimates that it will take 47 gigawatts of incremental power generation and $50 billion of power generation investment to create the new data centers through 2030.
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We are already seeing factory investments in the U.S. soaring with most of the spending tied to facilities that support computer, electronic and electrical production.
The S&P 500 utility sector ETF (XLU) is benefiting from higher electrical power demand and is outperforming the S&P 500 year-do-date.
In addition to the increased electricity demand from data centers, the west is working towards migrating to electrical everything;
The move from internal combustion engines to hybrid and all-electric cars is well underway.
Gas appliances in the home and yard (stoves, heaters, leaf blowers, etc.) are being regulated out and replaced with all-electric equipment.
Because of the need for power 24/7, the projection is about 60% of the electricity will come from gas fired power plants and 40% from renewable sources. Companies and stocks that are and should continue to benefit from the power surge include utilities, clean technology, energy transport, energy services and industrials.
The energy transformation underway appears to be a secular megatrend. There should continue to be many attractive investment opportunities as a result of this secular shift beyond Nvidia over the coming years.
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