Two Canadian stocks set to benefit from AI-driven datacenter expansion: RBC

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

The global electrical power analysts at RBC Capital Markets outline lower-risk ways to play the AI-driven growth in datacenters,

“Recent announcements highlight the potential growth in electricity demand driven by datacenter capacity expansions, and in the U.S., our findings show that datacenters could represent about half of the power demand growth through 2026. Further, we expect demand to accelerate beyond 2026 as the grid tries to catch up to a large backlog of projects. We also expect other regions to benefit and while preliminary in nature, we note AWS’ plan to invest €15.7 billion in Spain … Infrastructure companies provide lower-risk ways to play the growth in datacenters. Our global research teams have received numerous inbound inquiries on how energy infrastructure companies can benefit from the growth in datacenters”

The team points to Brookfield Renewable Partners (BEP-UN-T), with a 5.6 per cent indicated yield, and Transalta (TA-T) (2.5 per cent) as the best domestic plays on the theme.

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BMO senior economist Art Woo believes choppiness in the oil price will continue,

“Benchmark West Texas Intermediate (WTI) crude is closing in on US$85/bbl after it had sagged below $75 in early June following OPEC+’s surprising decision to begin rolling back 2.2 mb/d in voluntary production cuts at the beginning of October. The latest rebound in prices appears to be driven by a combination of factors, but mainly: (1) concerns that Hurricane Beryl could disrupt production in the Gulf of Mexico, (2) the start of the U.S. summer driving season, and (3) greater recognition that the oil market (i.e., global oil supply/demand balance) remains quite tight. Looking ahead, we expect the rollercoaster ride to continue, which is why we remain comfortable with our average WTI forecast of just over US$80/bbl in H2/24 and $80 in 2025. Prices could receive a temporary lift if concerns over supply disruptions reemerge in the Middle East or Russia, or if there is an acceleration in global monetary policy easing. On the flip side, news of slower demand from China (i.e., electric vehicle adoption), a pickup in U.S. crude production or an intensification of intra-cartel tensions could unnerve oil market participants”

“Crude Oil Outlook: The Saudi Effect” – BMO Economics

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Citi strategist Chris Montagu follows 93 investment themes covering more than 5,000 listed stocks. His monthly report on the relative attractiveness of these themes was published overnight,

“Cyber Security has become the currently most attractive theme. The theme constituents have seen comparative improvements on balance sheet metrics leading to a better ranking on Quality and has also seen improving trends in analyst outlooks leading to a higher ranking on Estimates Momentum. Data Storage is also a notable theme for moving into the top 10 themes coming from 26th ranked three months ago. This improvement is also mostly from better rankings on Quality and Estimates Momentum. The group of least attractive themes still contains several Sustainability-related themes. These themes rank towards the bottom on Momentum as well as Quality/Risk metrics. Green Mobility has recently fallen into the bottom five, but the rest of that group has been stable for several months.”

The top five themes are now cyber security, risky business (insurance), mobile payments, smart home and cloud computing. Bottom themes are DNA/genetics, electric vehicles, biofuels, agriculture demand and climate change.

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Goldman Sachs chief U.S. equity strategist David Kostin notes that professional money managers are asking the AI winners to show them the money, as summarized in Goldman’s Briefings report,

“While the earnings of these [AI-related] companies — NVIDIA, Microsoft, Alphabet, Amazon, and Meta — have supported the higher stock prices, investors are now shifting their focus to when the companies’ AI investments will translate into real revenue gains and earnings contributions, David Kostin, Goldman Sachs’ chief US equity strategist, says on Goldman Sachs Exchanges. “Portfolio managers had been really embracing the euphoria, the excitement about AI, and what that might mean for corporate profitability, business activity, [and] productivity in the economy,” Kostin tells host Allison Nathan. “More recently, that has shifted, and there’s much more questioning of managements — whether or not they can actually deliver better financial results as a consequence of all this investment that’s taking place.” For now, Kostin believes that the US equity market is fairly valued, and that the trajectory of the market looks to be in line with the trajectory of earnings.”

“Taking stock: Can the US rally continue?” – Goldman Sachs

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Diversion: “Scary Turbulence Sends Man Flying Into Overhead Bin in Viral Video” – Gizmodo