How Sector Performance Reflects the Cycle

In this episode we re-visit our AI Portfolio and Investment Thesis that we discussed back in Episode 21, but with a new emerging headwind. According to our very own Jess Inskip, "the real ‘P/E Risk’ isn't overhyped price to earnings. The risk is price to energy." (Get it? That's a P/E Ratio joke 👻)

AI Investing

Most of us are invested in AI, whether we know it or not, because the S&P 500 is mainly technology, and according to Yahoo Finance the S&P 500 is 31% technology, with  29.5% of that being only 7 stocks! (The Mag 7 or Magnificent 7)

How Much Electricity Does Generative AI Use?

Nvidia (NVDA) valuations are justified as the hyperscalers are top customers and we are seeing real earnings at incredible profit margins. The earnings potential makes sense. However, the energy consumption and subsequent pressure represents the real risk. Blackwell chips have not even made its way to market yet – each Blackwell AI GPU sold by Nvidia consumes up to 1200 watts of power, so 3.5mn of them would consume 1.8GW of power in the US alone. (Consensus estimates 3.5b in GPU sales by 2027).

Validate Your Investment Thesis (What you eat, eats.)

Look at the root of the problem with all of this AI grid pressure and see where the solutions might be (as in which companies are coming up with solutions for this bigger issue). "Sustainable AI" is still in its infancy, but maybe there are some companies out there that are using AI for good and to help come up with solutions to some of these issues?

AI Opportunities (but do your homework)

The grid pressure is a longer-term risk, it does not mean the AI story has peaked yet. AI build out cycle still in play: Opportunities still exist benefiting NVDA, AVGO, MRVL, AMD, and MU. Q1 earnings told us that capex spending is only increasing. Not adding more here, rather maintaining positioning. You can look into Copper and Uranium ETFs as well, just consider your personal ethics in investing and how that comes into play for you and which companies' success you truly want to be invested in (remember, when you buy a stock you are not giving money to the company directly, but you are invested in the success of that company). You can look at ESG ratings and do your own research to make sure you are comf

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Market MakeHer is an investing education podcast taught by a 15-year finance expert to her friend, a beginner investor. Our mission is to demystify the stock market and make financial literacy accessible to all self-directed investors! We teach complex investing topics in a different way - from "Her" perspective.
  
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