Is energy the gateway into the AI trade?

With the AI boom propelling markets, investors might seek alternative avenues to capitalize on this emerging trend. CNIC Funds CEO Tim Kramer joins Wealth! to explore why the energy sector could present an enticing entry point into the AI trade.

Kramer emphasizes that electricity "is the most consumed commodity in the US." He draws a parallel between the AI trade and the gold rush, suggesting that while gold was initially the hot commodity, attention soon shifted toward the companies or individuals that supplied the gold rush and trade—a similar pattern he anticipates with AI and electricity.

"Given that backdrop on how much more electricity this is going to take, we think that we're in a very interesting position to give people an opportunity to get exposure to that piece of the sector, which is the increase in electricity consumption," Kramer tells Yahoo Finance.

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This post was written by Angel Smith

Video transcript

Artificial Intelligence data centers are expected to add 323 terawatt hours of electricity demand by 2030 in the United States.

And that's according to Wells Fargo to put it in perspective, that's more than Italy's electricity usage for an entire year.

And the energy sector might be your back door into the A I trade.

Joining me now we've got Tim Kramer CN IC Fund CEO as part of the ETF report brought to you by Invest oqqq.

All right, let's get right to it here.

This is particularly interesting, Tim.

So tell us how one could consider position their portfolio for A I but in a different realm and that is through a utility here that's really going to be needed to power these data centers.

No, that, that's a great way to look at this.

And so electricity is the most consumed commodity in the US on a retail notional basis.

But up until now, it hasn't been in any mutual fund, any index, any ETF nothing.

And so what we did is we partner with Ice the Intercontinental Exchange, the, the company that owns the New York Stock Exchange and we created an elect electricity index.

And what that does is it takes electricity futures for six different regions in the US and it weights them together and it's backed by the those exchange cleared futures.

And then with that product, it gives you the ability to actually um basically go along the electrification of America.

So with that in mind, I mean, why is it that portfolios aren't really playing this or, or to what extent are we seeing investors play this side of the A I trade in their portfolios thus far, we're just now starting to see people pay attention to this.

And so when the A I trade popped up, it's almost like the gold rush and, you know, early on people wanted gold and then they realize, well, you know, maybe you're better off and it's probably a better risk adjusted proposition to sell the picks and the shovels and the, the jeans, right?

And so we're now seeing people a after they try to pick the direct uh participants in the A I sector.

Now they're trying to look at some of the more, you know, common things such as electricity or uh firms that might be providing, you know, cable copper uh transmission to the, the data centers.

And so this is kind of relatively new uh and we just created this a year ago, but people are starting to pay attention to it certainly.

And all these things in mind, I mean, we've seen a couple different sides of this A I trade going forward.

I mean, the way that Mark Zuckerberg described it, one of the meta platforms, earnings calls was you, you've got the applications that sit on top of the language learning models and then that sits on top of the chips uh in the data centers.

But we, we had never talked about what the chips in the data centers sit on top of which is real estate, which is utilities and power that goes into all of these things as well here.

So are there some some top kind of ways that we could see this transition over the years too in the different ways that ETF S are played as we get further into the A I realization of this technology?

Yeah.

Sure.

And that, that was a great leading with, with the way those things layered and, and using the Zuckerberg quote.

So just to kind of put that in context, a Google search takes 0.3 watt hours.

If you send an email, it takes one watt hour.

If you do an A I search, it currently takes four watt hours.

So over 10 times more than a regular search.

And by 2030 they're saying that that is gonna take 15 watt hours to do the same search.

And that's because the databases are much bigger and the chips that you're gonna be using are much more sophisticated and need more cooling.

So given that backdrop on how much more electricity this that this is going to take.

Uh you know, we think that we're in a very interesting position to kind of give people an opportunity to get exposure to that piece of the sector, which is the increase in electricity consumption.

That's a whole new wave of demand that, that these companies and the utility and the commodity landscape are gonna see how well positioned are they to make sure that at the same time that they're seeing more revenue potentially come in for because of the demand profile for their businesses that they have enough infrastructure, enough capacity and how in the near term they're gonna need to spend to bring more capacity online.

Oh, I mean, you're, you're kicking a hornet's nest with that one.

And so what happens is when you try to put these data centers and there's just massive amounts of electricity consumption that go with those, when you're trying to place those things, you're basically gonna be increasing the cost of electricity for everybody including you know, the the retail investors.

And so right now, I believe national status, more than 20% of the people in the US are behind in their utility bills.

And as you start to increase the power because you're increasing the demand.

So the supply and demand works out as you start to increase those prices that's gonna get passed through to the retail guy.

So the direct answer to your question is, you're starting to see people look for alternatives.

One of them is if I'm gonna build a data center, can I position this where I provide my own electricity?

And that's got its own problems with getting the, the infrastructure to do that.

Um The second thing you're seeing is some of these utilities are saying, OK, if you're gonna hook up a data center, you need to show up with a contract in your right hand that says you've got 90% of your electricity secured for the next 10 years.

You get to have a contract in your left hand that says you're able to pay for any system upgrades or transmission enhancements that might be needed due to your data center.

So the impacts are there and how this is gonna go.

It, it's still not clear but it's gonna be more expensive for everybody.

Tim Kramer CN IC funds CEO.

Thanks so much for taking the time here to break this down for us.

Thank you for the opportunity.

Appreciate it.