Attractive Entry Points in the Power and Resources Sector
The power & resources sector — a key component of the global economic engine — has not escaped the ongoing volatility that is rippling across equity markets. Changes in tariff policy, worries about AI-related demand and general fears about the economy have in the past two months contributed to sharp declines in many of the most prominent stocks in the industrials and utilities sectors, with drops of 10-25% in some cases. However, between these challenges, in combination with the massive public sell-off underway, some investors have gotten cold feet, and many industry veterans have been tested as to their ability to withstand the storm — though there are also potentially exciting entry points for long-term investors that understand that the opportunities in crypto are certainly not going away any time soon.
Navigating Market Volatility
Recent volatility in the power and resources sector reflects a broader context of economic and geopolitical challenges. Uncertainty surrounding trade tariffs, particularly those impacting energy infrastructure and raw material imports, has disrupted operational plans and heightened cost pressures. Worries regarding the uneven growth of AI-driven demand and its implications for data centers have further compounded these concerns, casting doubt over the near-term outlook for the sector. DeepSeek’s computationally efficient AI models, for instance, raised skepticism about the sustained demand for data center infrastructure, a critical driver of power consumption.
Additionally, global economic concerns stemming from inflation, geopolitical tensions, and fears of a potential recession have dampened optimism across industries. While these factors present genuine risks, the long-term case for power and resources companies remains compelling, as underlying trends in electrification, renewables, and technology-driven energy demand remain largely intact.
The Resilience of Electricity Demand
Electricity demand, the pillar of global energy supply, remains strong, providing a solid base for the power and resources industry and electricity demand is growing steadily. According to recent management commentary from U.S. power companies which are investing in building out transmission systems, renewable energy infrastructure, natural gas pipelines, and energy storage systems. World electricity demand is expected to rise 4% per year in 2024 and 2025, the fastest rate of growth since 2007, except for the post-pandemic rebound, according to the International Energy Agency (IEA).
Several megatrends are driving this growth, from the rise of artificial intelligence to the expansion of data centers and the broader shift toward electrification across industries, households and transportation. Specifically, AI systems and data centers need huge computational resources, which lead to an increase in the usage of electricity around the world. In a like manner, the move to more electrical vehicles and industrial and residential processes will further support demand on adequate power infrastructure and resources.
Long-Term Catalyst: Electrification
Electrification is one of the most fundamental transitions in global energy, with major ramifications for power and resources companies. Among the most-discussed aspects of this transition are electric vehicles (EVs), which created a stir in recent months with news of innovations like BYD’s new charging system that could give the same refueling speeds as gasoline-powered vehicles. And so the proliferation of individual EVs into our driving fleets raises household electricity loads in aggregate significantly, with the energy from the charger of a single EV increasing consumption on average by about 40% per household.
But electrification extends past transportation — it’s transforming industries and residences alike, spurring demand for electric heating systems, renewable energy installations and grid modernization. The global economy transition to electricity will necessitate roughly $3 trillion of yearly investments by 2030, including infrastructure to produce renewable power, battery storage, and high-power charging networks, according to estimates.
The shift to electrification is also supportive of various materials and resources companies, as EVs require six times the amount of minerals, by weight, as traditional internal combustion engine vehicles. As these technologies continue to advance, the demand for critical materials—like lithium, cobalt, and rare earth elements—grows, highlighting the strategic importance of resource extraction and processing industries during this transition.
Demand for Energy — Data Centers
The proliferation of data centers, fueled by advancements in AI and big data, continues to be a major driver of power demand. Despite recent debates surrounding the expected trajectory of data center capital spending, there is little evidence to suggest any slowdown in investments. In fact, the rise of large language models and frontier AI systems is increasing the computational intensity of data centers, necessitating further investments in high-performance compute infrastructure.
NVIDIA’s product roadmap reflects this trajectory, with next-generation AI computing solutions poised to drive further growth in data center infrastructure. A study by the Dell’Oro Group indicates that global data center capital expenditures will exceed $1 trillion annually by 2029, highlighting the sustained importance of this sector in shaping energy consumption patterns.
The intersection of AI and data centers represents a unique growth opportunity for power and resources companies. As technology giants allocate a significant share of their capital expenditures to AI-driven infrastructure, the demand for energy-efficient data centers and renewable power to supply them will continue to grow, creating opportunities for diversification across the energy value chain.
Opportunities Amid Valuation Resets
Though recent market volatility may have shaken the confidence of some investors, it has also opened the door to attractive entry points to discerning investors. Despite the chance to gain exposure to long-term growth themes at a discount, many industrials and utilities stocks have seen continued valuation resets. There is a lot of room for growth in electrical equipment manufacturing, renewable energy projects and resource extraction on industrials that benefits from the ongoing trends of electrification and energy transition.
For investors who are prepared to weather these risks, private market investment opportunities across data center infrastructure and energy transition assets can provide further avenues for diversification and growth. As the world shifts towards a digitalised, electrified economy these investments make sense in the context of securing resilient and sustainable energy systems.
A Positive Long-Term Outlook
While near-term pressures exist, the power and resources sector are well-positioned to provide strong equity market returns in the years ahead. Global electrification, renewable energy expansion, and the rise of AI-driven technologies will continue to increase the global demand for energy and resources. These are the trends of investing in infrastructure, materials, and innovation to provide an evolving solution for consumers and industries.
Additionally, the pursuit of clean energy policies along with government incentives (like the Inflation Reduction Act in the US) creates a multiple tailwinds scenario, keeping the long-term growth outlook intact for this sector. As companies and economies shift towards sustainable practices, the power and resources sector will continue to lead in this transformation, providing stability and potential for growth for investors.
Conclusion
Recent fluctuations in the power and resources sector illustrate the myriad economic, geopolitical and technological forces that are molding today’s markets. So, while these challenges have depressed stock returns in the near term, they also offer an attractive opportunity to invest in long-term growth themes. Electricity demand, electrification and data center expansion continue to be the key drivers for the energy and resources industries, providing a persistent and attractive investment case.
For investors who are forward-looking in their view and willing to manage the risks, the power and resources sector is an area of real opportunity. With their focus on innovation and sustainability, businesses in this sphere are preparing not just to survive, but to thrive in an ever-more interconnected and charged world, securing their place at the forefront for years to come.
