Bellwether Industrial Metal Copper Is Trading Like an AI Stock

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(Bloomberg) — Copper, famed for tracking shifts in the global industrial economy, is trading like a high-flying tech stock as investors bet that skyrocketing power use for artificial intelligence will fuel a surge in demand.

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The highly conductive metal that’s crucial for data centers and power grids has recently been moving in near-lockstep with stocks like Nvidia Corp. and ASML Holding NV. Prices climbed to a record close last week, then retreated as AI-related equities hit turbulence, and were rallying again on Friday as investors returned to the sector.

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The gyrations reflect how copper’s exposure to all the transmission lines, transformers and electrical equipment needed to power AI has become a key pillar in the bullish outlook for the metal. For now, that’s outweighing mounting worries about the Iran war’s impact on the more traditional industrial bedrock of copper demand.

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“This round of the rally is mainly driven by a structural AI-themed trade,” said Xu Shendi, director of base metal trading at DH Fund Management Co., one of China’s biggest hedge funds. She is neutral to bullish on copper’s outlook, and said further gains are likely to require a fresh wave of investor inflows into the tech sector, alongside tighter mine supplies. 

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AI isn’t the only force behind the rally. Investors have also been piling into hard assets like copper as a hedge against inflation, while chronic underinvestment in new mines sets the market up for a severe supply deficit.

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“Commodities have gone from being an overlooked asset class to becoming increasingly attractive for multi-asset investors,” said Matt Miskin, co-chief investment strategist at Manulife John Hancock Investments. “This is really a three-legged stool for copper: AI demand, inflation hedging and a run-it-hot macro environment.”

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Analysts vary widely on AI’s impact on copper demand, with estimates ranging from about 125,000 tons annually over the past three years to 1.1 million tons projected for data centers in 2025. Commodities trader Mercuria expects about 350,000 tons of growth this year, up from under 400,000 tons in 2025. 

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While that’s only about 2.5% of annual demand, Mercuria’s head of metals research, Nicholas Snowdon, told an industry conference in Hong Kong earlier this month that he expects the AI industry’s growth to be similar to that of China’s electric-vehicle and renewables sectors, which have become a major source of copper demand in less than a decade. 

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Still, some warn that the copper market is pricing in the demand uplift far too early. 

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Recent research by commodities brokerage Marex Group and Oxford University notes that while Microsoft Corp., Alphabet Inc.’s Google and Amazon.com Inc. have committed some $580 billion to US data center projects this year, the industry is running into formidable bottlenecks in securing labor, power, equipment and permits. 

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“For copper, it’s not really the data centers themselves that matter most — it’s the power generation and transmission network required to support them,” said Guy Wolf, Marex’s global head of market analytics. “The AI narrative is bullish for copper, but the actual metals demand is probably further into the future than many investors assume.”