🔌 AI's power grab

What’s going on here?

According to a new analysis, US electricity demand is set to jolt 16% higher over the next five years, driven by energy-guzzling data centers and factories.

What does this mean?

After decades of flat growth, demand for electricity in the US is buzzing. That’s thanks to AI-powered data centers, a flurry of new factories, and the electrification of things like cars and heating systems. So utility and energy providers have been bracing for the surge, with plans to add 128 gigawatts of capacity by 2029 – triple last year’s forecast for the same time frame. And as those firms race to boost their output potential, tech giants like Amazon, Google, and Microsoft are investing in nuclear energy faster than you can say “carbon-free”.

Why should I care?

For markets: Going with the flow.

The current is moving in the right direction for investors. Utility firms are expecting some added juice in their revenues, while clean energy sources like renewables and nuclear are lighting up with opportunity. The fossil fuel industry is catching this wave, too, creating both profit and challenges in the oil and gas markets.

Zooming out: Quenching the thirst.

Data centers and chipmakers aren’t just power-hungry – they’re thirsty too. And with global water demand set to outpace supply by 40% come 2030, resource management will likely become make-or-break for the tech and energy industries. Consider this: AI models like OpenAI’s ChatGPT can use a half-gallon (two liters) of water per ten to 50 queries. That’s got water-stressed regions feeling the heat. So Microsoft and Google are pouring resources into water-positive initiatives like high-tech cooling systems and wastewater treatment. And with the future all about sipping smarter, there’s a liquid gold rush waiting to happen.

What’s going on here?

Bank of America is warning of a froth building in US stocks and crypto, with both markets starting to look overvalued.

What does this mean?

Markets love being the main character. Just look at the S&P 500: it’s eye-wateringly expensive – but, hey, what does that matter when you’ve racked up a 27% gain this year and left the rest of the world eating your dust. Or take bitcoin: it certainly doesn’t seem to be fretting about whether its current rally has gone too far. Now, the eternal optimists will tell you these aren’t bubbles. And Bank of America’s global “bull/bear” gauge seems to agree: it shows that investors are still more bear cubs than raging, share-grabbing bulls. But that may be more due to economic worries outside of the US than in. It’s why one of the bank’s top strategists just made his fears known: he’s warning that while US stocks could gain another 10% over the next few months, they’re getting dangerously frothy.

Why should I care?

For markets: Adios, US exceptionalism.

Bank of America’s crystal ball sees US stock exceptionalism peaking in the next few months, with the big US index likely to be brought to heel as a stronger dollar makes those stocks more expensive for foreign buyers. Meanwhile, lower interest rates and more government stimulus elsewhere could make European stocks and emerging market assets more appealing. So you might want to think about diversification sooner rather than later.

The bigger picture: The alphas wait their turn.

US stocks are priced as if nothing could possibly go wrong. But that doesn’t mean another blockbuster year is in the cards. Rather, it suggests that any hiccup in the rosy outlook could spark big downward moves. Active investors might be secretly rejoicing: after years of watching markets “buy the S&P 500 and chill”, they’ve been looking for a market shake-up for the chance to make money from the opportunities they tend to bring.