Companies are investing billions to build out artificial intelligence capabilities. Ryan shares First Trust’s perspective on various investment themes that may benefit—either directly or indirectly—in the years ahead.
----------------------------------------------------------------------------------------------
Subscribe Here to the ROI Podcast & other First Trust Market News
Website: First Trust Portfolios
Connect with us on LinkedIn: First Trust LinkedIn
Follow us on X: First Trust on X
Subscribe to the First Trust YouTube Channel
Subscribe to the ROI Podcast YouTube Channel
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ryan (00:09):
Hi, welcome to this episode of the First Trust ROI
podcast.
I'm Ryan Isakainen, etfstrategist at First Trust and
host of the ROI podcast.
This is our first podcastepisode of 2025.
We had a wonderful time talkingwith a really insightful group
of guests in 2024, many of whomwill join us again in 2025.
(00:32):
And we also look forward tojoining some new guests, or some
new guests joining us in theyear ahead.
Starting with our second episodeof 2025, where I'll be joined
by Mandeep Singh from BloombergIntelligence.
He's a senior technologyanalyst.
We're going to talk about wheretechnology is going to be
taking us over the next severalyears.
(00:54):
We're going to spend a littlebit of time digging into
artificial intelligence, whatthe state of that is today and
what we can expect going forward.
What we can expect goingforward.
For today's episode, I wantedto share some of our thoughts on
the years ahead 2025 and beyondwhen it comes to some of the
trends and investing themes thatwe're really paying close
(01:15):
attention to at the outset ofthis year.
And, of course, I'm sure myconversation for our next
episode with Mandeep Singh willhelp to augment some of those
thoughts, because you certainlycan't talk about investing
themes without touching on theimpact of artificial
intelligence.
This is already having a bigimpact on the way that companies
(01:38):
and organizations allocatecapital.
We look at the value of certaincompanies that provide the guts
, the semiconductors, theinfrastructure related to
artificial intelligence, andthose companies have soared over
the last couple of years.
They've been driven by massivegrowth in revenue and, of course
, that shows up in the capitalspending of some of the largest
(02:00):
companies in the world.
For example, we look at Amazon,microsoft, google and Meta four
of the largest companies in theworld.
For example, we look at Amazon,microsoft, google and Meta four
of the largest companies in theworld and in 2023, together
they spent something like $150billion in capital expenditures.
A big chunk of that wenttowards their efforts in
artificial intelligence.
Well, last year, in 2024,that's forecast to have grown to
(02:22):
about $220 billion.
2024, that's forecasts havegrown to about $220 billion.
And then next year, 2025, orthis year, over the next year,
we expect that to grow tosomething like $260 billion.
That's just massive amounts ofmoney that's being invested.
You take those three yearstogether, that's something like
$630 billion invested in threeyears by just four companies.
(02:45):
It's really unprecedented, andwhat's on the minds of many
investors today is when doesthat growth in spend begin to
taper off?
Because it can't continueforever, nor should it.
And then the next phase of theartificial intelligence story,
if history is any guide, will bewhat companies are able then to
(03:06):
turn around and take some ofthose investments that have been
made and turn that into profits.
And so that's one of the thingsthat we want to think about.
Unfortunately, some of that onlygets known in hindsight,
ultimately, when we think backto previous big innovations.
Ultimately, when we think backto previous big innovations, I
(03:27):
think about the internet Earlyin my career, the winners in the
development and the build-outof the internet.
We really had no idea until wehad the benefit of hindsight.
You think of some of thebiggest companies in the world
Amazon, the $2 trillion behemoththat it's grown to.
Well, back when the internetwas at its birth, this was an
online bookseller.
(03:48):
We think about companies likeGoogle, which is now called
Alphabet.
We had no idea how Google wasgoing to monetize some of its
search results early on, but nowit's a $2 plus trillion market
cap.
Think of a company like Apple.
Apple's a $3.5 trillion marketcap company.
Well, apple's iPhone and theirdominance of that space and that
(04:11):
ecosystem.
It just wouldn't have happenedwithout the benefits of the
internet and ultimately we thinkthat something similar will
happen down the road withartificial intelligence.
Unfortunately, it's reallydifficult to say what those
(04:34):
ultimate winners and losers willbe when we think about
artificial intelligence goingforward.
We'll pay close attention asthe winners and losers emerge,
but there are certain industrieswhere we think you can already
begin to see some of thebenefits, some of the
investments that have been madein artificial intelligence
starting to pay off.
One that I have been payingclose attention to is the
(04:55):
biotechnology industry.
It's a business where it takesroughly a decade to develop a
new drug, something like a 90%failure rate.
Investment totals somethinglike $2 billion to bring a new
drug to market.
It's a really difficultbusiness and it's one that's
(05:16):
ripe to be disrupted andimproved the productivity and
efficiency by innovationsrelated to artificial
intelligence.
For example, you may have seenor read about over the last
couple of years, there's thismachine learning program from an
organization known as DeepMind.
They developed this programcalled the AlphaFold project and
(05:38):
there's been various iterationsof that and ultimately it
solved a multi-decade problemknown as the protein folding
problem.
Ultimately, it's figuring outhow amino acids form into
three-dimensional shapes forproteins.
Proteins are the buildingblocks of anything biological,
and that is just a new set ofinformation.
(05:59):
Essentially, deepmind was ableto, using machine learning, was
able to predict the shape ofalmost all the proteins known to
science, and so now researchershave this library that they
didn't have before, where theycan look at a disease and say I
want to develop a cure for thistargeted disease and I have a
much better idea of some of theaspects of how it, how the
(06:22):
biology, works within the humanbody, and that's a huge step
forward.
It doesn't.
It doesn't ultimately create acure.
But what's?
What's really exciting now, asyou read about some of the uh,
some of the ways that companiesare implementing uh, artificial
intelligence, is they're able tocompound that knowledge by
taking something like the, thealpha fold library of proteins,
(06:44):
and they're able to utilizeartificial intelligence to
develop new molecules to, firstoff, understand the disease but
then figure out how newmolecules whether that's sort of
the small molecule treatmentsof the past or antibody
treatments or proteins howthey'll then be able to bind to
(07:06):
the cells causing disease.
They're able to effectivelysort through the various
candidates that they'llintroduce into drug trials to
hopefully pick those that'll bemost successful and they're also
able to optimize for thosethat'll be most easily
manufactured, and this issomething that we did not have
(07:26):
the capability of until very,very recently.
And ultimately, I believe thatthis is one of the industries
that we'll see over the nextseveral years, introducing new
cures, new disease, new ways totreat diseases that we didn't
have before as a result ofartificial intelligence.
(07:46):
There'll be other industries aswell that we think will be
disrupted by the inclusion, theutilization of these tools
related to AI.
Apart from linkages to AI,though, I look at biotech, by
the way, over the next severalyears and it seems possible to
(08:06):
me that you know one Thank youhas been a lack of M&A deals and
industry consolidation goingforward under the new
administration.
We think is probably going tobenefit those companies.
And, of course, you look at theincoming administration.
They've got Vivek Ramaswamy,who has the ear of the president
(08:30):
.
What did he do before?
Well, he was a biotechentrepreneur, and I think maybe
that goes to offset some of theother folks that have the
presidents, the incomingpresidents ear that may be a
little bit more cautious aboutdrug development.
So the biotech industry is onethat we're watching closely and
we think may, over the nextseveral years, benefit from the
(08:53):
development of artificialintelligence.
But there are other ways, otherinvestment themes that we think
that are maybe a little bitmore off the radar, that are
also going to benefit from whatI call ripple effects of AI or
some of the second order impactsof this new technology.
It's always great toparticipate in things that are
(09:15):
in the news that everyone'stalking about, but I think there
may be more opportunities inareas that are tied to that
theme, but maybe not as directlyas you would think.
And one area that is becomingmore popular to talk about that
we at First Trust have been veryexcited about for a long time
is the related power demand thatis growing because of
(09:37):
artificial intelligence.
Growth in the expected demandfor electricity that sort of
what we would expect between nowand 2029, over the next five
years is expected to triple whatthe expected growth rate was
just a couple of years ago.
In other words, when we look at2022 estimates from FERC that's
(09:58):
, the Federal Energy RegulatoryCommission well, their five-year
growth rate projected when theymade those forecasts back in
2022 over this next five years,was about 3.6% growth.
It doesn't seem like that muchand, of course, if you look back
over the last couple of decades, the growth in electricity
demand has not been very strong.
(10:19):
Things have gotten moreefficient.
There hasn't been a huge growthin demand for electricity.
Well, they just released their2024 estimates for that same
five-year period and theincreased expected growth rate
went to about 12.5%.
So from 3.6% to 12.5% and again, that may seem small, but it's
(10:40):
triple the rate of growth thatwas expected just a few years
ago, and I certainly think thatwe could see further demand
growth expectations when youthink about things like data
centers, which AI data centersare a key vector of demand
growth for electricity goingforward, in addition to some of
the others that we can talkabout.
But there was a report fromDeloitte that was published near
(11:03):
the end of last year that saidthat data center electricity
demand growth is expectedglobally to top 1,000 terawatt
hours by 2030.
And that's more than doublewhat the sort of consumption has
been last year, and so that's atremendous amount.
To put that into context whenwe think about how much
(11:25):
electricity the nation of Japanconsumed last year or in 2023 is
the most recent statistic wehave.
It was about 900 terawatt hoursof power, so we're talking
about more being consumed bydata centers than all of the
nation of Japan.
It's a tremendous amount ofdemand for electricity growth.
(11:45):
And, of course, that doesn'teven speak to trends related to
cryptocurrency mining, trendsrelated to electric vehicles,
trends related to the sort ofonshoring of manufacturing and
build out of new factories.
We expect the demand forelectricity to soar over the
next several years as a resultof some of these new vectors of
(12:07):
demand.
Now, there's implications ofthat.
I know who actually benefits ifthere's a lot more electricity
demand.
Well, first off, we think thatpower grids around the world are
going to need massive amountsof investment.
In fact, bloomberg estimatesthat investments in power grids
between now and 2050 are goingto be somewhere around between
(12:27):
$14 trillion and $23 trillion,and I don't care if you're on
the low end of that estimate.
That is an enormous amount ofcapital spending that needs to
be made in order to meet thedemand growth for electricity
over the next several decades.
So, companies that areproviding the electrical
components, the poles, the wires, the transformers, the other
(12:49):
parts that you need to modernizea power grid to make it so
electrons flow in two differentdirections because, let's face
it, you've also got new sourcesof power production that have
come online, the largest ofwhich is solar and second is
wind.
Both are intermittent.
They're more distributed.
So you need to modernize thepower grid in light of all of
these areas and, as a result ofthat, we think you're going to
(13:13):
need to make massive investments, and those are some of the
sorts of companies that maybenefit.
Now, the second implication ofthat, in our opinion, is that
power production has to alsoincrease, so it's not just
transporting power.
You have to actually increasethe amount of power that is
being produced, and in order todo that, you have to actually
increase the production fromsources that haven't been
(13:37):
planned.
If we look, for example, atwhat has been planned over the
next several years, the vastmajority of new power production
in the US over the next fiveyears is expected to come from
solar power.
That's in order to meetmandates.
A lot of the power producingcompanies they're happy to
produce power via solar Windcomes in second.
(14:00):
Natural gas comes in.
Third, there's a massive amountof those that are expected to
come online.
However, there's a problem withthat, and the problem is that if
you're running a data center,you need to have access to power
24 hours a day, seven days aweek, 365 days a year.
You can't have intermittencywhen it comes to running your
(14:23):
data center, and so you can makemassive investments in
batteries.
But that adds cost, and so oneof the trends that we've seen
more and more of, especially inthe fourth quarter of this year,
is deals that were announced bysome of the technology
companies related to nuclearpower, and this is a big
development, because not toolong ago, nuclear power was not
(14:44):
something that these companieswere embracing.
Constellation made anannouncement that they were
going to restart a reactor atThree Mile Island to provide
nuclear power.
But guess what?
Even that deal, they estimatethat you won't have it online,
if everything goes well, untilabout 2028 at the earliest, and
(15:06):
of course, that's three yearsfrom now.
And so we think about the moreimmediate demand for power,
because these companies arebuilding out data centers as
quickly as they can, and I'm notsure that even something like
Constellation's selling ofnuclear power by 2028 is going
to satisfy some of that demand.
But the reality is there's veryfew of those sorts of deals
(15:29):
that are available to increasepower production.
Now you see other dealsannounced in agreements that
have been made between bigtechnology companies and nuclear
companies for things like smallmodular reactors, but, again,
those are not commerciallyavailable yet and they probably
won't be based on most estimatesuntil at least 2030, and, in
(15:51):
some cases, pushing back severalyears beyond that.
And so, even if you're planningto adopt nuclear power using
some of those small modularreactors, you're probably not
going to have them in place intime for the investments that
need to be made over the nextfive or so years.
And so, if renewables are toointermittent to satisfy that
(16:12):
demand, and nuclear, well, ittakes too long and you really
don't have the ability to scaleit up quickly.
Well, what does that leave?
Well, you could use, perhaps,coal, but that's too dirty, or
you could use natural gas.
And one of the things that weexpect over the next several
years is you're going to hearmore and more deals, like was
announced recently by Meta andEntergy, where Meta says that
(16:36):
they're going to build a $10billion AI data center in
Louisiana and, as a result ofthat, entergy is going to build
three new natural gas turbinepower plants to supply the power
.
Because, well, natural gas iscleaner than coal, it doesn't
have the intermittency of windand solar, and it's something
(16:59):
that you can build and scale upquickly, unlike nuclear, and so,
at least for the next severalyears, we think that some of
those deals will be announcedand with them will be long-term
contracts, which will benefitsome of the natural gas
companies, especially thecompanies that are transporting
natural gas.
We also think that some of theutility companies related to
(17:19):
this build-out of the power gridand power production as well,
will benefit, because, of course, if you're dealing with a
regulated utility, you and I endup bearing the cost of those
investments.
In other words, they're able topass along in many cases the
cost of the investments thatthey're making.
They're actually allowed tocharge a rate of return based on
(17:43):
those capital investments, andthat's good if you were a
utility company.
So that's another area where wethink may benefit as sort of a
second order effect in AI.
Another area that we're thinkingabout is this sort of theme
that we saw emerge last yearrelated to reshoring, in other
(18:03):
words, bringing manufacturingfrom overseas back into the US,
and we look at constructionspending on things like data
centers.
Well, it's at an all-time highin the US Over the last three
years.
We're looking at a growth rateof about 44% per year we look at
manufacturing or constructionspending on manufacturing
(18:25):
facilities related to computerand electronics.
Well, that involvessemiconductors, and if you've
seen in the news some of theannouncements made by big
semiconductor companies that arebuilding new plants, well, the
rate of growth over the lastthree years for that has been
about 82% per year.
So massive, massive amounts ofgrowth, a strong likelihood that
(18:55):
some of these trends continuegoing forward.
And part of the reason isbecause, well, let's face it,
the new administration probablyhas more protectionist policies
that they're going to put inplace At least they're talking
about that.
And of course, if you've gotprotectionist policies for
imports, then there's anincentive to actually
manufacture goods here.
In the US there's risinggeopolitical instability and
(19:15):
unfortunately we see thatgrowing by the day.
That translates into highercosts for businesses and again,
so that's a financial oreconomic incentive to build out
some of their manufacturingcapacity in the US.
And then there's a strategicimperative for certain key
industries, like semiconductors,to move manufacturing to the US
(19:36):
.
And on that last point, that'sone of the big reasons that the
CHIPS Act was passed in the US acouple of years ago.
Of course, this is a bigprogram that the federal
government signed into law wherethey're going to award tens of
billions of dollars tosemiconductor companies.
Now, one of the things that Ididn't see reported too much in
(19:57):
the press in the fourth quarterthat we noticed was that since
election day last year so reallysince about November 15th
there's been $30 plus billion uhconditional commitments for
funding that were converted intofinal awards for the chips act.
(20:18):
In other words, they were sortof uh, the commerce department
said, yeah, you're probablygoing to get this money, but
they, they finalized those dealsuh in the last month and a half
, um, because they want to makesure that they're in place and
awarded uh before the nextadministration comes in.
Now, setting aside whether it'sgood policy or not, we'll leave
that to others to discuss Iknow the Trump administration.
(20:41):
You know Donald Trump has saidthings like maybe tariffs are a
better way to incentivize chipmanufacturers to build out their
manufacturing capacity in theUS.
Build out their manufacturingcapacity in the US.
Setting that aside, this is thepolicy that's in place and it's
$30 billion that's been awarded,but what's interesting is
(21:01):
that's really only a small pieceof what's going to be spent in
the years ahead.
For example, micron is acompany that was given one of
the largest awards over $6billion that they were awarded.
Recently.
They've announced plans tospend as much as $100 billion
over the next couple of decadesin my hometown of Syracuse, new
(21:22):
York, and building newsemiconductor plants.
Now it remains to be seen.
Maybe it won't be $100 billion,maybe it will be.
None of us really knows whatthe future holds, but that is
their stated intention.
But here's another interestingpart of that story.
Micron in Syracuse made thisannouncement over two years ago
and they have yet to breakground in those plants.
(21:44):
In fact, they say thatoptimistically.
The earliest that they can dothat is not until November of
2025.
So towards the end of this year, and who knows?
That could always get pushedback once again.
And why that's important to meis that's one of many companies
where they're in similarsituations, where some of the
(22:05):
regulatory hurdles are in placethat may actually start to get
reduced in the year ahead underthe new administration.
But also it signals thatthere's a lot of money, that
this spending that we've seenalready is perhaps a drop in the
bucket compared to what we'regoing to see as these large
semiconductor companies continueto build out their
(22:25):
manufacturing capacity in the US, and so this is one of these
long-term secular themes that wethink will benefit from the
ripple effects of AI.
And, of course, you say well,who benefits from building big
manufacturing facilities?
Well, some of those companiesrelated to construction and
engineering and providing thesite work and providing the HVAC
(22:50):
for those buildings, some ofthose small manufacturers should
really benefit from some of thebuild-out in manufacturing
capacity in the US, and sothat's one of the areas that
we're paying close attention tofor 2025 and beyond, because we
think this is off the beatenpath.
These are not themes thatnecessarily, people are thinking
(23:10):
of first when they think ofartificial intelligence, but we
do think that these companiesmay benefit as we think about
the potential for growth in theyears ahead.
Now, there's no doubt to us thatthere will be plenty of
surprises in 2025.
That always happens.
It's inevitable.
(23:31):
We respond to those as we seethem.
We're prepared with adiversified portfolio and,
fortunately, we're pleased toalways work with financial
professionals who have the bestinterests of their clients in
mind and can help those clientsthrough times that are uncertain
, times that can sometimes beemotional.
(23:52):
So, once again, we're lookingforward to 2025.
We're paying close attention tosome of those themes that may
benefit from some of theselong-term secular trends that
are happening in society.
We're always looking foropportunities for growth in the
midst of that, and I'm lookingforward to 2025, especially
because I have the opportunityto talk to some of the smartest
(24:15):
people that I know, get theirinsights and hopefully share
them with you.
So once again, thank you forjoining us on this episode of
the First Trust ROI podcast.
We look forward to speakingwith you throughout 2025 and
hope you have a wonderful andprosperous year.
Take care, everyone.
We'll see you next.
Hi, welcome to this episode of the First Trust ROI
podcast.
I'm Ryan Isakainen, etfstrategist at First Trust and
host of the ROI podcast.
This is our first podcastepisode of 2025.
We had a wonderful time talkingwith a really insightful group
of guests in 2024, many of whomwill join us again in 2025.
(00:32):
And we also look forward tojoining some new guests, or some
new guests joining us in theyear ahead.
Starting with our second episodeof 2025, where I'll be joined
by Mandeep Singh from BloombergIntelligence.
He's a senior technologyanalyst.
We're going to talk about wheretechnology is going to be
taking us over the next severalyears.
(00:54):
We're going to spend a littlebit of time digging into
artificial intelligence, whatthe state of that is today and
what we can expect going forward.
What we can expect goingforward.
For today's episode, I wantedto share some of our thoughts on
the years ahead 2025 and beyondwhen it comes to some of the
trends and investing themes thatwe're really paying close
(01:15):
attention to at the outset ofthis year.
And, of course, I'm sure myconversation for our next
episode with Mandeep Singh willhelp to augment some of those
thoughts, because you certainlycan't talk about investing
themes without touching on theimpact of artificial
intelligence.
This is already having a bigimpact on the way that companies
(01:38):
and organizations allocatecapital.
We look at the value of certaincompanies that provide the guts
, the semiconductors, theinfrastructure related to
artificial intelligence, andthose companies have soared over
the last couple of years.
They've been driven by massivegrowth in revenue and, of course
, that shows up in the capitalspending of some of the largest
(02:00):
companies in the world.
For example, we look at Amazon,microsoft, google and Meta four
of the largest companies in theworld.
For example, we look at Amazon,microsoft, google and Meta four
of the largest companies in theworld and in 2023, together
they spent something like $150billion in capital expenditures.
A big chunk of that wenttowards their efforts in
artificial intelligence.
Well, last year, in 2024,that's forecast to have grown to
(02:22):
about $220 billion.
2024, that's forecasts havegrown to about $220 billion.
And then next year, 2025, orthis year, over the next year,
we expect that to grow tosomething like $260 billion.
That's just massive amounts ofmoney that's being invested.
You take those three yearstogether, that's something like
$630 billion invested in threeyears by just four companies.
(02:45):
It's really unprecedented, andwhat's on the minds of many
investors today is when doesthat growth in spend begin to
taper off?
Because it can't continueforever, nor should it.
And then the next phase of theartificial intelligence story,
if history is any guide, will bewhat companies are able then to
(03:06):
turn around and take some ofthose investments that have been
made and turn that into profits.
And so that's one of the thingsthat we want to think about.
Unfortunately, some of that onlygets known in hindsight,
ultimately, when we think backto previous big innovations.
Ultimately, when we think backto previous big innovations, I
(03:27):
think about the internet Earlyin my career, the winners in the
development and the build-outof the internet.
We really had no idea until wehad the benefit of hindsight.
You think of some of thebiggest companies in the world
Amazon, the $2 trillion behemoththat it's grown to.
Well, back when the internetwas at its birth, this was an
online bookseller.
(03:48):
We think about companies likeGoogle, which is now called
Alphabet.
We had no idea how Google wasgoing to monetize some of its
search results early on, but nowit's a $2 plus trillion market
cap.
Think of a company like Apple.
Apple's a $3.5 trillion marketcap company.
Well, apple's iPhone and theirdominance of that space and that
(04:11):
ecosystem.
It just wouldn't have happenedwithout the benefits of the
internet and ultimately we thinkthat something similar will
happen down the road withartificial intelligence.
Unfortunately, it's reallydifficult to say what those
(04:34):
ultimate winners and losers willbe when we think about
artificial intelligence goingforward.
We'll pay close attention asthe winners and losers emerge,
but there are certain industrieswhere we think you can already
begin to see some of thebenefits, some of the
investments that have been madein artificial intelligence
starting to pay off.
One that I have been payingclose attention to is the
(04:55):
biotechnology industry.
It's a business where it takesroughly a decade to develop a
new drug, something like a 90%failure rate.
Investment totals somethinglike $2 billion to bring a new
drug to market.
It's a really difficultbusiness and it's one that's
(05:16):
ripe to be disrupted andimproved the productivity and
efficiency by innovationsrelated to artificial
intelligence.
For example, you may have seenor read about over the last
couple of years, there's thismachine learning program from an
organization known as DeepMind.
They developed this programcalled the AlphaFold project and
(05:38):
there's been various iterationsof that and ultimately it
solved a multi-decade problemknown as the protein folding
problem.
Ultimately, it's figuring outhow amino acids form into
three-dimensional shapes forproteins.
Proteins are the buildingblocks of anything biological,
and that is just a new set ofinformation.
(05:59):
Essentially, deepmind was ableto, using machine learning, was
able to predict the shape ofalmost all the proteins known to
science, and so now researchershave this library that they
didn't have before, where theycan look at a disease and say I
want to develop a cure for thistargeted disease and I have a
much better idea of some of theaspects of how it, how the
(06:22):
biology, works within the humanbody, and that's a huge step
forward.
It doesn't.
It doesn't ultimately create acure.
But what's?
What's really exciting now, asyou read about some of the uh,
some of the ways that companiesare implementing uh, artificial
intelligence, is they're able tocompound that knowledge by
taking something like the, thealpha fold library of proteins,
(06:44):
and they're able to utilizeartificial intelligence to
develop new molecules to, firstoff, understand the disease but
then figure out how newmolecules whether that's sort of
the small molecule treatmentsof the past or antibody
treatments or proteins howthey'll then be able to bind to
(07:06):
the cells causing disease.
They're able to effectivelysort through the various
candidates that they'llintroduce into drug trials to
hopefully pick those that'll bemost successful and they're also
able to optimize for thosethat'll be most easily
manufactured, and this issomething that we did not have
(07:26):
the capability of until very,very recently.
And ultimately, I believe thatthis is one of the industries
that we'll see over the nextseveral years, introducing new
cures, new disease, new ways totreat diseases that we didn't
have before as a result ofartificial intelligence.
(07:46):
There'll be other industries aswell that we think will be
disrupted by the inclusion, theutilization of these tools
related to AI.
Apart from linkages to AI,though, I look at biotech, by
the way, over the next severalyears and it seems possible to
(08:06):
me that you know one Thank youhas been a lack of M&A deals and
industry consolidation goingforward under the new
administration.
We think is probably going tobenefit those companies.
And, of course, you look at theincoming administration.
They've got Vivek Ramaswamy,who has the ear of the president
(08:30):
.
What did he do before?
Well, he was a biotechentrepreneur, and I think maybe
that goes to offset some of theother folks that have the
presidents, the incomingpresidents ear that may be a
little bit more cautious aboutdrug development.
So the biotech industry is onethat we're watching closely and
we think may, over the nextseveral years, benefit from the
(08:53):
development of artificialintelligence.
But there are other ways, otherinvestment themes that we think
that are maybe a little bitmore off the radar, that are
also going to benefit from whatI call ripple effects of AI or
some of the second order impactsof this new technology.
It's always great toparticipate in things that are
(09:15):
in the news that everyone'stalking about, but I think there
may be more opportunities inareas that are tied to that
theme, but maybe not as directlyas you would think.
And one area that is becomingmore popular to talk about that
we at First Trust have been veryexcited about for a long time
is the related power demand thatis growing because of
(09:37):
artificial intelligence.
Growth in the expected demandfor electricity that sort of
what we would expect between nowand 2029, over the next five
years is expected to triple whatthe expected growth rate was
just a couple of years ago.
In other words, when we look at2022 estimates from FERC that's
(09:58):
, the Federal Energy RegulatoryCommission well, their five-year
growth rate projected when theymade those forecasts back in
2022 over this next five years,was about 3.6% growth.
It doesn't seem like that muchand, of course, if you look back
over the last couple of decades, the growth in electricity
demand has not been very strong.
(10:19):
Things have gotten moreefficient.
There hasn't been a huge growthin demand for electricity.
Well, they just released their2024 estimates for that same
five-year period and theincreased expected growth rate
went to about 12.5%.
So from 3.6% to 12.5% and again, that may seem small, but it's
(10:40):
triple the rate of growth thatwas expected just a few years
ago, and I certainly think thatwe could see further demand
growth expectations when youthink about things like data
centers, which AI data centersare a key vector of demand
growth for electricity goingforward, in addition to some of
the others that we can talkabout.
But there was a report fromDeloitte that was published near
(11:03):
the end of last year that saidthat data center electricity
demand growth is expectedglobally to top 1,000 terawatt
hours by 2030.
And that's more than doublewhat the sort of consumption has
been last year, and so that's atremendous amount.
To put that into context whenwe think about how much
(11:25):
electricity the nation of Japanconsumed last year or in 2023 is
the most recent statistic wehave.
It was about 900 terawatt hoursof power, so we're talking
about more being consumed bydata centers than all of the
nation of Japan.
It's a tremendous amount ofdemand for electricity growth.
(11:45):
And, of course, that doesn'teven speak to trends related to
cryptocurrency mining, trendsrelated to electric vehicles,
trends related to the sort ofonshoring of manufacturing and
build out of new factories.
We expect the demand forelectricity to soar over the
next several years as a resultof some of these new vectors of
(12:07):
demand.
Now, there's implications ofthat.
I know who actually benefits ifthere's a lot more electricity
demand.
Well, first off, we think thatpower grids around the world are
going to need massive amountsof investment.
In fact, bloomberg estimatesthat investments in power grids
between now and 2050 are goingto be somewhere around between
(12:27):
$14 trillion and $23 trillion,and I don't care if you're on
the low end of that estimate.
That is an enormous amount ofcapital spending that needs to
be made in order to meet thedemand growth for electricity
over the next several decades.
So, companies that areproviding the electrical
components, the poles, the wires, the transformers, the other
(12:49):
parts that you need to modernizea power grid to make it so
electrons flow in two differentdirections because, let's face
it, you've also got new sourcesof power production that have
come online, the largest ofwhich is solar and second is
wind.
Both are intermittent.
They're more distributed.
So you need to modernize thepower grid in light of all of
these areas and, as a result ofthat, we think you're going to
(13:13):
need to make massive investments, and those are some of the
sorts of companies that maybenefit.
Now, the second implication ofthat, in our opinion, is that
power production has to alsoincrease, so it's not just
transporting power.
You have to actually increasethe amount of power that is
being produced, and in order todo that, you have to actually
increase the production fromsources that haven't been
(13:37):
planned.
If we look, for example, atwhat has been planned over the
next several years, the vastmajority of new power production
in the US over the next fiveyears is expected to come from
solar power.
That's in order to meetmandates.
A lot of the power producingcompanies they're happy to
produce power via solar Windcomes in second.
(14:00):
Natural gas comes in.
Third, there's a massive amountof those that are expected to
come online.
However, there's a problem withthat, and the problem is that if
you're running a data center,you need to have access to power
24 hours a day, seven days aweek, 365 days a year.
You can't have intermittencywhen it comes to running your
(14:23):
data center, and so you can makemassive investments in
batteries.
But that adds cost, and so oneof the trends that we've seen
more and more of, especially inthe fourth quarter of this year,
is deals that were announced bysome of the technology
companies related to nuclearpower, and this is a big
development, because not toolong ago, nuclear power was not
(14:44):
something that these companieswere embracing.
Constellation made anannouncement that they were
going to restart a reactor atThree Mile Island to provide
nuclear power.
But guess what?
Even that deal, they estimatethat you won't have it online,
if everything goes well, untilabout 2028 at the earliest, and
(15:06):
of course, that's three yearsfrom now.
And so we think about the moreimmediate demand for power,
because these companies arebuilding out data centers as
quickly as they can, and I'm notsure that even something like
Constellation's selling ofnuclear power by 2028 is going
to satisfy some of that demand.
But the reality is there's veryfew of those sorts of deals
(15:29):
that are available to increasepower production.
Now you see other dealsannounced in agreements that
have been made between bigtechnology companies and nuclear
companies for things like smallmodular reactors, but, again,
those are not commerciallyavailable yet and they probably
won't be based on most estimatesuntil at least 2030, and, in
(15:51):
some cases, pushing back severalyears beyond that.
And so, even if you're planningto adopt nuclear power using
some of those small modularreactors, you're probably not
going to have them in place intime for the investments that
need to be made over the nextfive or so years.
And so, if renewables are toointermittent to satisfy that
(16:12):
demand, and nuclear, well, ittakes too long and you really
don't have the ability to scaleit up quickly.
Well, what does that leave?
Well, you could use, perhaps,coal, but that's too dirty, or
you could use natural gas.
And one of the things that weexpect over the next several
years is you're going to hearmore and more deals, like was
announced recently by Meta andEntergy, where Meta says that
(16:36):
they're going to build a $10billion AI data center in
Louisiana and, as a result ofthat, entergy is going to build
three new natural gas turbinepower plants to supply the power
.
Because, well, natural gas iscleaner than coal, it doesn't
have the intermittency of windand solar, and it's something
(16:59):
that you can build and scale upquickly, unlike nuclear, and so,
at least for the next severalyears, we think that some of
those deals will be announcedand with them will be long-term
contracts, which will benefitsome of the natural gas
companies, especially thecompanies that are transporting
natural gas.
We also think that some of theutility companies related to
(17:19):
this build-out of the power gridand power production as well,
will benefit, because, of course, if you're dealing with a
regulated utility, you and I endup bearing the cost of those
investments.
In other words, they're able topass along in many cases the
cost of the investments thatthey're making.
They're actually allowed tocharge a rate of return based on
(17:43):
those capital investments, andthat's good if you were a
utility company.
So that's another area where wethink may benefit as sort of a
second order effect in AI.
Another area that we're thinkingabout is this sort of theme
that we saw emerge last yearrelated to reshoring, in other
(18:03):
words, bringing manufacturingfrom overseas back into the US,
and we look at constructionspending on things like data
centers.
Well, it's at an all-time highin the US Over the last three
years.
We're looking at a growth rateof about 44% per year we look at
manufacturing or constructionspending on manufacturing
(18:25):
facilities related to computerand electronics.
Well, that involvessemiconductors, and if you've
seen in the news some of theannouncements made by big
semiconductor companies that arebuilding new plants, well, the
rate of growth over the lastthree years for that has been
about 82% per year.
So massive, massive amounts ofgrowth, a strong likelihood that
(18:55):
some of these trends continuegoing forward.
And part of the reason isbecause, well, let's face it,
the new administration probablyhas more protectionist policies
that they're going to put inplace At least they're talking
about that.
And of course, if you've gotprotectionist policies for
imports, then there's anincentive to actually
manufacture goods here.
In the US there's risinggeopolitical instability and
(19:15):
unfortunately we see thatgrowing by the day.
That translates into highercosts for businesses and again,
so that's a financial oreconomic incentive to build out
some of their manufacturingcapacity in the US.
And then there's a strategicimperative for certain key
industries, like semiconductors,to move manufacturing to the US
(19:36):
.
And on that last point, that'sone of the big reasons that the
CHIPS Act was passed in the US acouple of years ago.
Of course, this is a bigprogram that the federal
government signed into law wherethey're going to award tens of
billions of dollars tosemiconductor companies.
Now, one of the things that Ididn't see reported too much in
(19:57):
the press in the fourth quarterthat we noticed was that since
election day last year so reallysince about November 15th
there's been $30 plus billion uhconditional commitments for
funding that were converted intofinal awards for the chips act.
(20:18):
In other words, they were sortof uh, the commerce department
said, yeah, you're probablygoing to get this money, but
they, they finalized those dealsuh in the last month and a half
, um, because they want to makesure that they're in place and
awarded uh before the nextadministration comes in.
Now, setting aside whether it'sgood policy or not, we'll leave
that to others to discuss Iknow the Trump administration.
(20:41):
You know Donald Trump has saidthings like maybe tariffs are a
better way to incentivize chipmanufacturers to build out their
manufacturing capacity in theUS.
Build out their manufacturingcapacity in the US.
Setting that aside, this is thepolicy that's in place and it's
$30 billion that's been awarded,but what's interesting is
(21:01):
that's really only a small pieceof what's going to be spent in
the years ahead.
For example, micron is acompany that was given one of
the largest awards over $6billion that they were awarded.
Recently.
They've announced plans tospend as much as $100 billion
over the next couple of decadesin my hometown of Syracuse, new
(21:22):
York, and building newsemiconductor plants.
Now it remains to be seen.
Maybe it won't be $100 billion,maybe it will be.
None of us really knows whatthe future holds, but that is
their stated intention.
But here's another interestingpart of that story.
Micron in Syracuse made thisannouncement over two years ago
and they have yet to breakground in those plants.
(21:44):
In fact, they say thatoptimistically.
The earliest that they can dothat is not until November of
2025.
So towards the end of this year, and who knows?
That could always get pushedback once again.
And why that's important to meis that's one of many companies
where they're in similarsituations, where some of the
(22:05):
regulatory hurdles are in placethat may actually start to get
reduced in the year ahead underthe new administration.
But also it signals thatthere's a lot of money, that
this spending that we've seenalready is perhaps a drop in the
bucket compared to what we'regoing to see as these large
semiconductor companies continueto build out their
(22:25):
manufacturing capacity in the US, and so this is one of these
long-term secular themes that wethink will benefit from the
ripple effects of AI.
And, of course, you say well,who benefits from building big
manufacturing facilities?
Well, some of those companiesrelated to construction and
engineering and providing thesite work and providing the HVAC
(22:50):
for those buildings, some ofthose small manufacturers should
really benefit from some of thebuild-out in manufacturing
capacity in the US, and sothat's one of the areas that
we're paying close attention tofor 2025 and beyond, because we
think this is off the beatenpath.
These are not themes thatnecessarily, people are thinking
(23:10):
of first when they think ofartificial intelligence, but we
do think that these companiesmay benefit as we think about
the potential for growth in theyears ahead.
Now, there's no doubt to us thatthere will be plenty of
surprises in 2025.
That always happens.
It's inevitable.
(23:31):
We respond to those as we seethem.
We're prepared with adiversified portfolio and,
fortunately, we're pleased toalways work with financial
professionals who have the bestinterests of their clients in
mind and can help those clientsthrough times that are uncertain
, times that can sometimes beemotional.
(23:52):
So, once again, we're lookingforward to 2025.
We're paying close attention tosome of those themes that may
benefit from some of theselong-term secular trends that
are happening in society.
We're always looking foropportunities for growth in the
midst of that, and I'm lookingforward to 2025, especially
because I have the opportunityto talk to some of the smartest
(24:15):
people that I know, get theirinsights and hopefully share
them with you.
So once again, thank you forjoining us on this episode of
the First Trust ROI podcast.
We look forward to speakingwith you throughout 2025 and
hope you have a wonderful andprosperous year.
Take care, everyone.
We'll see you next.
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy And Charlamagne Tha God!
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.