Chart of the Week - Capex Megatrends
You might have missed it with all the news/noise of this year, but if you look in the right places you’ll find a burgeoning thematic capex boom — and many of these themes are set to run over multiple years and at major scale.
Key themes and drivers of the Capex Boom:
Electrification: the rise and rollout of electronic vehicles (especially in China) + the infrastructure to enable that such as charging stations, breakthroughs and scaling of battery technology + the things that enables (e.g. solar), and increased energy investment to fuel the resultant rise in demand.
Energy Transition: this spans things like smart grids and infrastructure improvement but also an apparent showdown between renewable energy and nuclear energy as the receivers of the baton from oil & gas in the great global energy transition.
Artificial Intelligence: the big thing on this front is datacenters and the energy production capacity to fuel booming electricity demand, but also likely coming next will be a boom in production of AI-enabled devices.
Robotics: one such AI-enabled device will be an extension of the boom in consumer robotics (beyond just robotic lawnmowers, cleaners, and toys); there are big things happening with humanoid robots and autonomous vehicles (roaming the sky, ground, water, and spaces in between, helping with all sorts of tasks), not to mention ongoing penetration of robotics into manufacturing, construction, and logistics.
‘Shoring: the three big shorings are likely to continue; reshoring (bringing manufacturing back, nearshoring (bringing manufacturing closer), friendshoring (making geopolitical-driven decisions on manufacturing location). These reflect ongoing supply chain resiliency efforts post-pandemic, along with regulatory incentives, and the harrowing geopolitical landscape.
Next-gen Manufacturing: closely related to that is next-generation manufacturing, which includes things like 3D printing and robotics —which raise the imperative for leadership in advanced manufacturing and enable reduced emphasis/constraints around labor costs.
Geopolitics/Defense: and back on geopolitics, war continues to be a racket; Europe is making a major step-up in defense spending, restocking across the world following transfers to Ukraine, maybe a “golden dome“, and future warfare R&D and rollout (including the intersection of robotics, AI, and the new realities of modern warfare; i.e. drones).
Space: on a brighter note, the emerging commercial space sector is gathering momentum; with cost to orbit and options for launch steadily improving and opening the path to increased off-world commercial activity (satellites and space stations, zero-g manufacturing, tourism, space-based resource utilization, and eventually moon/mars economy).
The reason this is interesting, aside from being just plain interesting, is the impact on commodities demand —especially industrial metals. While industrial metals tend to be very cyclically sensitive, there are clearly multiple themes and trends already in play that are set to boost demand.
Meanwhile on the supply side we’ve just been through one of the deepest and longest downturns in industrial metals & mining capex; while this is turning around, it is clear that the world is underinvesting in supply relative to what is required for all these great things outlined above (so… on that note, maybe also add capex relating to commodity exploration, production, and processing to the list!).
All of this adds up to a bullish outlook for metals (and commodities in general). And overall it’s a reminder that there are some bright spots and upsides out there.
Key point: There’s a multi-pronged thematic capex boom underway.
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