Scarcity

I hosted a panel this week where we debated where scarcity — and therefore value — remained within the AI value chain. Concerns have (inevitably) emerged around the trajectory of returns post the enormous CapEx and infrastructure build, the application layer is suffering from relentless supply and Chinese competition (aka Deepseek, Baidu, Alibaba) is drawing comparisons of ‘what China did to solar and EVs they could now do to…’. The apparent efficiencies produced by Deepseek’s R-1 have turned the power down on energy (see Vistra down 37%) and most nuclear exposures remain cum-downgrades as the Street ran ahead of reality (and 10-year build times).

The one area we all agreed on was data. 

Hitting the data wall

As we’ve discussed previously and as Musk mentioned in this Tangen interview, over time the greatest scarcity for AI growth is the data to train on. The WSJ argues tech giants have harvested almost every last bit of web content available and they warn that high-quality data could completely run out in the next two years. That’s great news for Musk (and Meta) with their vast networks of social media users, satellites, and robots from which they can harvest enormous amounts of data. It’s also good news for those significant and largely untapped repositories of real-world data, with real-world outcomes, like that sitting in our National Health Service in the UK. I’m therefore encouraged to see GSK push the Government to allow pharmaceutical companies access to it. Just imagine what this might mean for accelerated drug development, personalized healthcare, the UK’s ranking in Life Sciences, the drug companies themselves. The FTSE? 

The innovation factor

A word on innovation. If looking for innovation, you may not find it in the places you expect it, like the Nasdaq or innovation ETFs. Yes, of course they include some very innovative companies. But not all. A better way to express the innovation factor could be done systematically. As argued in this Bloomberg paper, finding stocks that consistently spend ‘a high percentage of revenue on R&D’, where that spend is ‘consistent, regular and rising,’ produces better returns. Even than the Nasdaq. And clearly the US doesn’t have a monopoly on ‘good ideas’. There appears to be some good ones in China, The Netherlands, EU Defence contractors, the UK (of course!) and even Finland…

Nokia vs Nvidia

While the debate continues as to Nvidia, the arguments for Nokia grow louder by the day. The record-breaking Netflix drama series Adolescence is the latest to shine a light on the dangers of childhood exposure to social media. These concerns, along with Jonathan Haidt’s the Anxious Generation (a must read) and T.J Power’s 'Dose Effect' are renewing real-world safety conversations, leading to greater support for phone-fasting, digital detoxes, age-gating social media and banning iPhones in secondary schools.

One likely outcome, which we discussed last year, is a resurgence in demand for dumbphones, like the Nokia ‘brick’ that my son was handed on his first day at secondary school. Indeed, per the manufacturer, the Brick is Back, with double-digit growth in sales for two consecutive years. Add the growing prospects for a cease-fire in Ukraine and we could see Finnish stock markets (upon which Nokia’s listed) regain what they lost. Where, unlike the rest of Europe, which is making record highs, Finnish stocks remain 30% below their pre-war peak. 

Riding a young bull

The European version of the Dow is the Euro Stoxx 50 Index. Finally, after 24 years of waiting, it’s made a new all-time high, led not by tanks, but banks (and Nokia!). What’s interesting, it took a similar amount of time for the Dow to make new highs after peaking in 1929. Then, after breaking out in 1954 it compounded +10% for the next 11 years. Might history rhyme? In Europe? Well, we now have an emergent narrative to champion the numbers (the inflows); Military Keynesianism, aka fiscal largesse. This is occurring at a time the US are moving in the opposite direction. And make no mistake, the benefits of defense spending go well beyond defense stocks. Indeed, for the remainder of this decade, their order books will probably be full meaning they must invest.

So, I’m still of the view Europe is a young bull. One worth riding for a while longer. These reversions, once they break, tend to last for years, not weeks. 

The material world

While demand from rearmament, reshoring, and reconstruction activity, combined with a chronic under-investment, could lead to a super-cycle in commodities, things could get more interesting should old plans for climate transition (remember them?) be renewed. While the US appears temporarily preoccupied, the rest of the world seems committed to at least some form of transition, but especially so in China. Consider the fact they will install more solar capacity this year than the US has installed in its history (good news for silver demand), while EV sales just rose 76% YoY in February (see BYD at record highs).

It’s probably worth re-reading this OECD report, " Raw Materials Critical For The Green Transition." In it they estimate demand for minerals will grow 4x to 6x, on average, between 2020 and 2030. I doubt supply can keep up, meaning price probably will. 

Strategic reserves

China plans to add copper to its strategic reserves in 2025, alongside other critical metals like cobalt, nickel, and lithium. This move is part of a broader effort to enhance the resilience of its critical mineral supplies amid rising energy-transition demand and geopolitical tensions. Now, US buyers are also trying to stockpile the red metal, reportedly to avoid potential tariffs. But I’m wondering if something more profound is at play. Something more structural that could act like a put option for copper demand and drive a reappraisal of it as a cyclical commodity to something more strategic? And remember, we need to mine more copper in the next 22 years than we have mined in all of human history.

Not a fact I picked up paying thousands for Wall Street research, but £17 for Ed Conway’s 'Material World', the touch stone for what could become a large mean-reversion from the ethereal to material world. Remember that with the combined annual cash flow from Nvidia, Apple, Meta and Amazon you could buy the entire European Miners Index. The FTSE has quite a few miners…. Just saying. 

Wealth effects

The Economist picked up on the theme we discussed recently, the idea that falling US stock markets could tip the US into recession and stocks into a bear-market. Wealth effects from equities have increased thanks to an explosion in household ownership of stocks, up 128% in the past six years, to be worth 1.7x America’s household disposable income. That’s 2x the average since 1947 and the highest level on record. As stocks are a visible proxy for wealth - and priced daily - their impacts are felt immediately. This observation is not lost on China, it seems, who have included stocks (and property) in their policy agenda. Increase the value of collateral, and confidence and consumption (their no. 1 priority) should follow. As discussed, it’s seldom wise to ignore the command of a command economy. And it appears the command has been given to get stocks higher.

PS: Chinese households still save at a higher rate than pre-pandemic and have hoarded c40% of savings as a percentage of GDP. Dry powder in other words...another young bull.

Germany - serious businesses

If you don’t believe how serious the Germans are about their obligations to improve economic and regional security, consider when a party triggers a Zählappell, or parliamentary roll call, it is serious business. “They will haul MPs out of bed—usually their own.”