Artificial Intelligence (AI) is being embraced as the future of mankind. Still, little is mentioned about the vast energy consumption required to drive this new phenomenon as we strive to have a cleaner planet—it’s arguably a contradiction. The “big tech” companies have recently focused on nuclear power to satisfy their massive increasing demand for energy, which will grow exponentially over the coming years; this has triggered a round of frantic deal-making as companies battle for uninterrupted supplies. Nuclear power has emerged as a favoured option.
- Bill Gates of Microsoft fame, for example, is championing nuclear energy as a solution to reaching the world’s net zero climate targets and a way to meet Silicon Valley’s prodigious electricity needs as companies develop ever more complex AI tools.
We agree with Gates that nuclear is one, if not the best answer to this looming issue, but there’s likely to be an energy hole that requires plugging in the meantime, and coal could serve the function, albeit not in an environmentally friendly manner – a factor people are discounting in the pursuit of AI in the first place. We cannot always have our cake and eat it. Since COVID oil and uranium stocks have surged higher with coal, the standout laggard, we believe this relative underperformance will be addressed.
Just like the world has reined in its adoption of EVs, we believe that if the lights start fading, all of coal’s sins will be forgotten in a heartbeat; yesterday saw Porsche become the latest car manufacturer to back off its transition to full electric. We believe it’s a matter of when, not if, that coal stocks enjoy a resurgence.
For coal stocks to improve, the commodity needs to recover from its sharp decline over the last few years—not as bad as lithium, but another example of commodities being cyclical markets. If /when China rekindles economic growth in its subdued economy, the coal price should, in theory, come back to life as demand lifts.
- We can see thermal coal trading back to its ~$US200 average of the last few years, a move that would be very bullish for coal stocks.
- We continue to like coal as an investment over the next few years, outlining our views towards four major coal miners with specific attention to where we like them, if at all!
- At a corporate level, can see Whitehaven Coal/New Hope, or even Yancoal merging with one of the other big listed companies to create an Australian mega-coal champion as the economies of scale stack up.
