
Coming off the second-consecutive year of outsized returns for US equity markets, we begin 2025 with many familiar themes dominating the investing zeitgeist. The electrification of the grid, the moderation of inflation making way for incremental rate cuts, and the unrelenting advance of artificial intelligence is helping mobilize capital ahead of Trump 2.0.
Meanwhile, the AI arms race continues to spill out to every corner of corporate America. While headlines are dominated by big tech — Microsoft kicked off the year with a pledge to spend $80 billion building out AI data centers this year — some of the best performing names have been far afield of neural networking.
The top name on the S&P 500 last year was Vistra Energy1. Not a purveyor of large language models or AI software built to transform enterprise operations, Vistra, which produced an eye-popping 264% return in 2024, is the second largest operator of nuclear power in the US. The Texas-based outfit had an explosive 2024, becoming the first utility company to top the index since 2001, as large tech companies tripped over themselves to secure power on the forward curve.
It’s also just one example of the knock-on effects of the AI boom. The buildout of data centers to support artificial intelligence will require an incremental one million metric tons of copper demand by 2030, commodity giant Trafigura said. Rare earth metals, a market historically dominated by China, as well as gold, silver, and platinum are also expected to see rising demand.
How does all this fit together, how should investors think about commodity risks, and opportunities, in their portfolios?
We had the chance to sit down with Kevin Baum, the Chief Investment Officer of USCF Investments, to dig further. Kevin has 20 years experience as a senior commodities portfolio manager and has earned the Barron’s / Value Line “Top 100 Managers” designation three times. We took Kevin’s temperature on how some of these hot-button themes like potentially inflationary tariffs, decarbonization, and rise of data centers are likely to play out in 2025.
AU: The last few years have seen geopolitical conflict in Eastern Europe, the Middle East, Africa — each of them having significant ripple effects felt throughout markets, but particularly commodities markets. As 2025 kicks off with a new administration, how are you thinking about commodity pricing, the prospect of tariffs, and an escalation of tension with China?
KB: The transition from the Biden Administration to the Trump Administration will undoubtedly result in changing priorities and related policy adjustments. With respect to tariffs, and specifically China, it’s worth noting that China’s response to tariffs during the first Trump Administration included retaliating against US agriculture. China imposed tariffs up to 25% on key US agricultural products such as soybeans, corn, wheat, and beef. While this playbook could be repeated, the US is a much smaller piece of the China ag import pie than it was the first time Trump took office.
AU: We are in the middle of the decarbonization movement — companies, nation states, and individuals have all been called to reduce their carbon footprint. How quickly do you see that evolution taking place, what will the impact be on traditional fossil fuel markets? Which types of commodities are best positioned to outperform from this green transformation?
KB: Many countries and companies have fallen behind on their emissions reduction pledges. Nonetheless, the energy transition continues with greater than 20% YoY increases in global EV sales, and huge increases in renewable energy generation. Undoubtedly, the minerals and metals required for EV batteries, solar, and wind will continue to experience strong demand growth. Interestingly, history shows us that new technologies tend to account for much of the world’s demand growth, without initially eating into much of the existing energy demand. For example, demand for wood remained largely unchanged upon the arrival of the coal era. Similarly, oil and gas were the new ‘technology’ one hundred years ago, and these fuels captured much of the growth in demand, while aggregate coal demand was steady. The same scenario is likely to unfold over the next 10-15 years with mineral and metal intensive technologies capturing most of the global demand growth, and fossil fuel demand remaining largely in-tact.
AU: It’s the elephant in practically every room: AI. The demand for energy to support generative AI has reshaped forward power curves far off into the distance. How will AI continue to shape the energy market and what are some lesser-known ways investors and advisors can play this trend?
KB: In the nuclear space, there’s been a lot of buzz about the potential of small modular reactors (SMRs) to help meet growing AI related power demand. SMRs could have a role to play, but significant progress will need to be made before they’re cost competitive. Again, the majority of increasing power demand will be met by renewables, which are very mineral intensive. Metals such as copper and aluminum will see increased demand from power generation capacity additions, but also from the need for significant buildouts of transmission and distribution lines. Investors and advisors undoubtedly have multiple ways to participate in the AI and electrification themes, and we believe diversifying the expression of such views across asset classes, and from downstream (equities) to upstream (direct metals exposure such as our copper ETF – CPER) remains a prudent approach.
AU: The growing need for energy storage in a renewables world and the electrification of vehicles is creating a massive demand for raw materials like lithium, cobalt, nickel, and manganese — how is this trend shaping the commodities arena?
KB: The minerals and metals demand from EVs and renewable energy is 5x to 10x that of comparable internal combustion engine vehicles and traditional gas or coal fired generation facilities. Due to the intermittency challenge of renewable power sources, the demand for battery storage is also growing rapidly. As your question suggests, the common denominator for these technologies are the necessary minerals and metals. The demand tailwinds for materials such as lithium, nickel, and copper will continue for the foreseeable future. Supply will undoubtedly grow as well, but these commodities will experience price cycles given that supply responses tend to be uneven. USCF’s conviction about the secular story of the energy transition is such that we now offer a battery metals ETF – ZSB.
AU: Broadly speaking, how should advisors think about investing in commodities — where do they fit in a balanced portfolio? How should investors think about hard commodities, soft commodities, and getting exposure to both?
KB: Many investors will find interesting thematic opportunities for battery minerals such as lithium, and metals necessary across the broader electrification spectrum such as copper. For advisors constructing robust, diversified portfolios, we believe a broad basket approach to commodities is prudent. Exposure to a basket of commodities, such as our ETF with ticker SDCI, can provide lower correlation return streams, and inflation hedging properties, to portfolios of stocks and bonds.
AU: Copper, or “Dr. Copper,” as commodities buffs will sometimes call it for its ability to foreshadow broader economic conditions, has had quite a year. Hopes for a soft landing in the US and global industrial growth have helped Copper prices rise meaningfully. Now, demand from electric and utilities companies, which use the conductive metal to transport power to data centers, has many people thinking copper prices will continue to rise in the era of generative AI. Tell us a little bit about your outlook for copper and the CPER ETF.
KB: The structural demand story for copper is undoubtedly compelling. As discussed, there are multiple secular demand drivers for copper including:
- Electric vehicles require two to three times more copper than a conventional internal combustion engine vehicle
- Adding a megawatt of power generation capacity from solar or wind requires roughly three times more copper than adding the same capacity via a natural gas fired plant
- Data centers, and the power generation facilities needed to support them, are very copper intensive, as are the transmission and distribution lines necessary to deliver this power
The supply-side challenge stems from the time it takes to bring new mines online. While advances in technology can unlock additional supply, the reality is that it typically takes 15 to 20 years, or more, to bring new mines into service. Most observers are calling for supply deficits in coming years given a lack of capital having been allocated to bringing on additional supply. There’s no guarantee of higher prices, and volatility is inevitable, but we believe the intermediate to long-term outlook is compelling.
AU: Thank you so much Kevin, for all that insight. For advisors looking at commodities in 2025, we suggest checking out USCF’s suite of ETFs here.
- The one stock with a claim on Vistra’s position on the S&P 500’s leaderboard is Palantir Technologies Inc., whose 350% gain comes with the caveat that it was only added to the S&P 500 in September.