Sheets of copper cathodes at a refinery in Montreal, Quebec, Canada.
(Bloomberg) — Investors can best play the artificial intelligence frenzy by mixing AI names with holdings of cheaper stocks linked to the economy, like commodities shares, according to Bank of America Corp. strategists.
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With the London equities market a good place to achieve this given its strong exposure to resources, the team led by Michael Hartnett recommended investors be long resources and UK stocks.
The development of AI data centers is driving up demand for energy and commodities such as copper, a key component in everything from plumbing to power cables to electric vehicles. The FTSE 100 benchmark index is home to mining giants such as Rio Tinto Plc, Anglo American Plc and Glencore Plc.
“Artificial intelligence devours commodities,” the BofA team wrote.
The UK market also offers exposure to defensive sectors that provide a hedge against the risk that the technology stock rally becomes overdone, with major health care companies like AstraZeneca Plc and GSK Plc in the London benchmark.
The strategists noted evidence of “frothy” market patterns in price action, valuations, concentration and speculation. Meanwhile, leading indicators of inflation are inflecting higher, as shown in the rising ISM services prices-paid metric. Still, history shows that it takes monetary policy tightening to end periods of excessive gains in asset prices, and no central bank in the world has increased interest rates in past two months, they said.
Investor appetite for AI-related stocks has shown no sign of abating over the past two years. A BofA basket of AI leaders including Nvidia Corp., Micron Technology Inc., and Palantir Technologies Inc. has surged in excess of 450% since the start of 2023, more than three times the gains of the technology-heavy Nasdaq 100 index.
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