The AI boom has not just given the “hardware trade” new life–it’s boosted demand for all sorts of real-world physical things. Energy and materials are the best performing sectors this year, with gains of 24 and 17% respectively. Meantime, the S&P 500 is flat, and the “Mag 7” are in the red.
And it’s not just the AI boom. That’s really the cherry on top of a massive capex cycle we are right now for a variety of reasons, including incentives in Trump’s “big beautiful bill,” Fed easing, and a decade-plus of underinvestment that has now set off a scramble for physical goods.
“It’s the ‘revenge of the old economy’,” wrote Peter Boockvar of One Point BFG earlier this week, borrowing a line from Carlyle’s Jeff Currie.
What’s fascinating is that this is not the first time this has occurred. A very similar phenomenon took place after the dotcom bubble burst, which is when Currie, who was then at Goldman Sachs, first coined the phrase.
Capital had flowed into hot internet names in the ’90s at the expense of the three relatively underperforming commodity sectors (energy, materials, and utilities). “As a result, insufficient infrastructure and capacity were built…to deal with demand in the next expansion,” Currie wrote, predicting it would “only be remedied once prices rise high enough to generate competitive rates of return.”
And that’s exactly what happened. Let’s not forget that oil prices would go on to soar to over $140 a barrel in 2008, just before the onset of the Great Recession–equivalent to over $200 a barrel in today’s dollars! Similar story for copper, aluminum, and natural gas. In 2000, Microsoft was the world’s largest company. By 2010, it was a close call between ExxonMobil and PetroChina.
In fact, “Market leadership has rotated between energy and technology for decades,” Currie observed last year. Even before the dotcom era, for example, the “asset-light” Nifty Fifty companies soared in the 1960s, only to give way to a boom in asset-heavy resource companies (amid soaring inflation) in the subsequent decade.
We appear to be at a similar turning point now, he thinks. But it’s not as simple as saying Exxon will reign supreme again. “This cycle is a bit different,” Currie adds, noting the real upside this time around should go to all the stuff that is in too-short supply for the AI buildout, like copper.
As for where this leaves the formerly “Mag 7,” he isn’t optimistic. “Since the hyperscalers are putting steel in the ground now, they should get rerated like commodity producers, which will be painful.” Their output, AI compute, should be thought of as a commodity like power, Currie adds.
If he’s right, could this even mean the rise of regional U.S. economies like the industrial belt, while tech high-flyers like Austin suffer? That may be the next question to ask.
Kelly