China’s AI Bets Pivot to Power, Metals as Tech Bubble Fears Grow

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(Bloomberg) — Chinese investors hunting for the next artificial intelligence winners are looking beyond high-flying chipmakers to the utilities and metal producers that form the industry’s physical backbone.

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The shift toward the sector’s supply chain — from power generators to materials used in data centers — reflects growing concern over lofty valuations in pure-play AI stocks. Analysts say firms supporting the tech ecosystem offer a more affordable entry point into this year’s hottest theme.

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The pivot is already showing up in the market. An index tracking Chinese energy stocks rallied 10% in October, and is on track to beat the CSI 300 Index for a second straight month. Seven of the top 10 gainers on the benchmark in the past month are tied to AI infrastructure.

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“No power, no AI,” BofA Securities analysts including Matty Zhao wrote in a note dated Oct. 31. They argue that China is better positioned than the US, Europe, and Southeast Asia due to its vast generation capacity, lower power costs, and abundant renewable energy. 

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By 2030, about one-third of China’s total AI spending will go toward building the supporting facilities, with metals, power, and cooling systems taking the bulk of the outlay, the investment bank estimates. 

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Here are some of the likely beneficiaries of this boom:

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Power Equipment 

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Power equipment makers are reaping the rewards as data centers drive up electricity demand. UBS Group AG recently doubled its forecast of power demand growth in China to 8% by 2028-2030, citing data centers, exports and electrification as key drivers. 

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“We prefer local power equipment manufacturers,” said Ken Liu, head of Greater China energy transition & renewables research at a briefing Wednesday, citing the government’s plan to boost energy infrastructure investment in its next five-year plan.

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Shares of solar energy equipment maker CSI Solar Co. have jumped 31% this month, while those of electrical component producer TBEA Co. have rallied nearly 21% in the same period. In contrast, the CSI 300 has remained little changed. Even after the rally, the CSI 300 Energy Index trades at a 12-month forward price-to-earnings ratio of about 13 — well below the multiple of 34 for the index’s information technology sub-gauge. 

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AI Metals

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Metals used to build data centers and other AI facilities — such as servers and energy systems — are another area that’s getting a second look. Prices have been rising, with more analysts now viewing them as affordable ways to invest in the AI boom.

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BofA Securities said data centers are becoming a key driver for China’s copper demand, estimating that the metal’s use in these facilities will grow at an average annual rate of 20% through 2030. The brokerage also expects the rally in aluminum stocks to continue.

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Aluminum Corp. of China Ltd. is among the best performing stocks on the CSI 300 Index over the past month, with around 35% gain, while Shandong Nanshan Aluminum Co. and Yunnan Aluminium Co. have each gained about 30%.