TheBRRR’s Thoughts

GM.

Fairly quiet start to the week as stocks continue to melt higher after last week’s dovish positioning from the Fed and weak employment data.

As is often the case, “bad news is good news” for stocks, as bad economic news gives the Fed a reason to cut interest rates and stimulate the economy.

Interest rate cuts appear significantly more likely than they did just a week ago and so markets are pricing this in, evidenced by the recent bid behind big tech and crypto.

Solana was 2023’s “fastest horse” amongst crypto assets and continues to outperform BTC and ETH in 2024.

Given the muted economic calendar this week, we’re zooming out to cover assets and trends we view as great long-term bets:

1. nuclear energy & its role in the AI boom
2. an AI chipmaker with monopolistic power/positioning (not NVDA)

AI-driven Demand Boosts Nuclear Power & Uranium Investment

WHAT HAPPENED:

• Investment Shift: Investors traditionally focused on semiconductor stocks due to the AI boom are now channeling funds into nuclear power and uranium stocks, motivated by the anticipated surge in electricity demand from AI technologies.

• Uranium Price Surge: Over the past year, uranium prices have increased by 70%, reaching a high of $106 per pound in February 2024—the highest since 2007. This spike is attributed to growing orders for new nuclear plants and limited supply.

MARKET DYNAMICS:

• Goldman Sachs' Market Moves: Goldman Sachs has expanded its market activities to include uranium options trading for hedge funds and holds substantial uranium inventories worth $356 million.

• AI and Energy Demand: The demand for energy, particularly for powering data centers that facilitate generative AI, is expected to rise dramatically. Morgan Stanley predicts a 318 terawatt-hour increase in electricity demand by data centers from 2024 to 2027, equivalent to the annual power usage of Indonesia.

TECH SECTOR'S NUCLEAR INTEREST:

• Tech Companies' Power Strategies: Major tech firms are exploring stable power solutions for their operations. Microsoft, for instance, has contracted nuclear-generated electricity for its eastern U.S. data centers and is exploring connections with small modular reactors (SMRs).

• Market Reevaluation: The potential reclassification of companies like Vistra—which has a PER of about 16 compared to the semiconductor sector's 30—as AI-related stocks could reveal them as undervalued.

RISKS AND CHALLENGES:

• Supply Constraints: The uranium market faces potential supply issues as mining companies struggle to expand production quickly enough to meet the growing demand, especially from countries like China that are expanding their nuclear capabilities at a rapid pace.

WHY IT MATTERS:

• Energy Transition and AI: The intersection of AI's energy needs and nuclear power highlights a critical aspect of the broader energy transition, emphasizing the role of stable, carbon-free power sources in supporting advanced technologies.

• Investment Landscape: The evolving investment focus reflects a broader market recognition of nuclear power’s role in sustainable energy strategies, driven by the tech industry’s massive energy requirements.

Nikkei Asia

ASML: Leading The Charge

ASML Holding N.V.: Leading the Charge in Next-Gen Chip Manufacturing

WHAT HAPPENED:

• Monopoly in EUV Lithography: ASML Holding N.V., a Dutch semiconductor company, has a strong market position with its extreme ultraviolet (EUV) lithography technology. Over the past decade, ASML's stock has significantly outperformed the semiconductor index, growing its market cap to $350 billion.

• Surge in EUV Sales: Revenue from ASML's EUV lithography has skyrocketed by 9x over the last seven years. This growth is set to eclipse sales from its older systems in 2024, with EUV sales hitting $9 billion last year.

TECHNICAL INSIGHTS:

• What is EUV?: EUV lithography uses powerful ultraviolet light to etch incredibly fine circuits on silicon wafers, achieving designs as small as 8 nanometers. These capabilities are essential for advanced chip manufacturing.

• High-NA EUV Machines: ASML's latest innovation, the High-NA EUV Lithography Machine, which Intel purchased for $350 million, represents the cutting edge of this technology.

MARKET DYNAMICS:

• Revenue Growth: ASML's EUV technology is becoming its primary revenue driver, expected to surpass its legacy Argon Fluoride Immersion systems in 2024.

• Legislative and Market Support: The CHIPS Act in the U.S., with $50 billion in funding, particularly $39 billion for manufacturing incentives, is likely to boost demand for ASML's machines, especially as new semiconductor plants are built.

RISKS AND REGULATIONS:

• Trade Tensions: Recent U.S. government restrictions on exports to China pose risks, potentially impacting ASML's growth in one of its significant markets.

• Competition and Innovation: While ASML holds a monopoly on EUV technology, competitors like Canon are developing alternative chip-making technologies which could challenge ASML's dominance.

FINANCIAL HEALTH:

• Strong Margins: ASML maintains robust gross margins, with recent figures around 51.4%, reflecting its market strength and operational efficiency.

• Earnings and Projections: Despite the trade challenges, ASML's financial performance remains strong, with significant growth in revenue and profits expected to continue, albeit with potential adjustments due to market restrictions.

WHY IT MATTERS:

• Impact on the Tech Ecosystem: ASML's technologies are critical for the production of next-generation microchips, essential for everything from consumer electronics to advanced AI systems.

• Investment Potential: With its strategic importance in the semiconductor industry and supported by legislative measures like the CHIPS Act, ASML presents a compelling investment opportunity, despite current geopolitical tensions.

SeekingAlpha

Got feedback? Follow the writer on Twitter @frank_locascio and send a message.

The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll