The AI Boom and the Rise of Data Centers
Artificial intelligence is quickly becoming a tool of everyday use. From generative AI models like ChatGPT and Co-Pilot to AI-powered analytics and automation tools, the demand for computational power has skyrocketed. This surge has led to a massive buildout of data centers, which serve as the physical backbone of AI infrastructure.
Data center construction in the U.S. has doubled in the past two years, with major tech firms like Microsoft, Amazon, and Alphabet investing hundreds of billions cumulatively to expand their AI capabilities. The McKinsey consulting firm estimated that total spending on data centers could hit $6.7 trillion by 2030 (not a typo… details here). These facilities are both power-intensive and material-intensive, requiring vast quantities of raw materials such as copper for power distribution, cooling systems, and networking infrastructure.
With billions of dollars being invested, power consumption skyrocketing, and infrastructure racing to keep up, this could lead to an increased demand for raw materials. The materials and mining sector stand to benefit from the explosive growth of artificial intelligence (AI). Among the many raw materials poised to benefit, copper emerges as an important player in the infrastructure of the digital age.
The Case for Copper
Copper’s superior electrical conductivity, durability, and thermal properties make it indispensable in data center construction. It’s used in power cables, cooling systems, Networking cables for high-speed data transfer, and Transformers and grid infrastructure that support power delivery.
A single hyperscale data center may consume over 2,000 tons of copper. As AI models become more complex and energy-intensive, the infrastructure supporting them must scale accordingly. This could mean solid returns for investors in the Material sector in the coming years.
The performance would be a welcome change as the Materials sector has been out of favor for some time. The annualized sector return of the sector is a mere 4.39% over the last three years, well below the overall S&P 500-ex Materials return of 15.75%. Details here.
Lackluster returns haven’t always been the norm for the Materials sector, however. The sector was the “hot” thing to own from 2003-2007, more than tripling in the four-year window. After the 2008 meltdown, the sector tripled again from 2009-2011. All in total, from 2001-2011, the Materials sector more than doubled in price while the broad market was flat and the Technology sector was down -10%! Could the current market be setting up for a similar environment?
Tax Code Changes: The Icing on the Cake?
In another helpful happenstance, recent changes to the U.S. tax code introduced a new provision allowing for advanced depreciation on capital expenditures related to infrastructure and technology. This change enables companies to write off investments in data centers, mining equipment, and processing facilities more quickly, improving cash flow and incentivizing expansion. The lower upfront tax burdens, should encourage new construction and upgrades to facilities, leading to rising demand for refined materials like copper, aluminum, and rare earths.
The Risks
The materials sector remains vulnerable to tariffs and trade restrictions. Many critical minerals are sourced from a handful of countries—over 60% of refined copper comes from just three nations, and 90% of rare earths are produced in China. The concentration of mineral production in a few regions creates vulnerability to disruptions from political instability, labor strikes, or environmental regulations, which could limit output and drive up costs.
Tariffs on imported raw materials can inflate input costs, squeezing margins for manufacturers and processors. Conversely, tariffs on exported finished goods can limit market access, reducing revenue potential.
Furthermore, innovations in chip design, cooling systems, and data center architecture could reduce the need for copper usage per unit of computing power. The near-term risk to materials, and copper specifically, may be an existing stockpile of resources. Copper inventories are currently above average due to front-loading of refined copper imports ahead of an announced 50% import tariff on copper products, which was scheduled to take effect August 1, 2025. Refined copper was ultimately exempted from the tariff, triggering a sharp price decline in copper futures. This imbalance may take several months to regulate, but it also may present an attractive entry point for patient investors.
Conclusion
The convergence of AI, data center expansion, and favorable tax policy appears to be creating a perfect storm of opportunity for the materials and mining sector. Copper, in particular, stands out as a strategic asset in the digital economy, with demand set to rise dramatically over the next decade.
Feel free to reach out to discuss whether or not we should consider adding exposure to the Materials sector in your portfolio.
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