The Federal Reserve is set to cut rates, American households hold $19 trillion in cash awaiting deployment, and AI industry "picks and shovels" players are outperforming tech stocks... Recently, Bank of America released "The RIC Report: The AI enablers are winning," dissecting current macro trends, AI supply chain investment opportunities and risks. Today we'll break down the core insights of this report to see where global capital might flow next.
**I. Macro Backdrop: Rates Set to Fall, $19 Trillion Cash "Seeking Deployment"**
BofA's latest forecast shows that due to weak August non-farm payroll data, the Fed may cut rates twice this year and three more times in 2026, ultimately bringing rates down to around 3.25%. Currently, US households hold $19 trillion in cash, 30% above pre-pandemic trends - cash returns are being "eroded" by inflation and taxes, making this capital urgently need better allocation opportunities.
From economic data perspective, August "soft data" (investor sentiment, consumer confidence, etc.) showed slight improvement, with ISM new orders index and Conference Board consumer confidence index rising to 0.4 standard deviations below mean; "hard data" (actual economic activity indicators) remained stable, above long-term mean by 0.3 standard deviations, presenting an overall "weak recovery but not recession" pattern.
In fixed income, BofA recommends: long-term bonds as tactical allocation, but AAA-rated loan funds with lower volatility are more prudent; equity markets should focus on "AI enablers" - these assets have significantly outperformed broader markets over the past two years.
**II. AI Enablers: "Hidden Champions" Outperforming Nasdaq, But Correlation Risk Rising**
So-called "AI enablers" refer to sectors providing foundational support for the AI industry, including power generators, infrastructure & industrial companies, nuclear firms, pipeline MLPs and other "picks and shovels" sectors.
Report data shows these sectors comprehensively outperformed the tech-heavy Nasdaq 100 over the past two years: utilities, industrial equipment, nuclear, pipeline MLPs not only delivered higher absolute returns, but some areas also showed superior risk-adjusted returns (like Sharpe ratios).
However, correlation between these "AI enablers" and tech stocks is hitting new highs: unregulated power generators and natural gas pipeline companies show 71% correlation with Nasdaq 100; small-mid cap (SMID) industrial stocks show 86% correlation; power grid infrastructure reaches 92% correlation; only uranium and nuclear companies show relatively lower correlation (56%).
BofA warns this high correlation means markets are becoming "highly tied to AI demand" - if AI customer spending or hyperscaler capex slows, these sectors could face synchronized pressure, creating "all rise together, all fall together" risk.
**III. Key Sector Breakdown: Investment Logic for Energy, Industrials, Utilities, Nuclear**
To analyze "AI enablers" opportunities more deeply, BofA analyst teams held roundtable discussions with energy, industrial, and utility experts, identifying core logic for each sector:
**1. Energy: Natural Gas Sees "Double Tailwinds," LNG Exports Become New Engine**
Demand explosion: Data center natural gas demand, combined with US lifting liquefied natural gas (LNG) export bans, drives natural gas sector valuation re-rating. Previously markets expected natural gas demand to decline post-2030, but current LNG export facility construction is accelerating, becoming the "second growth curve" for natural gas over the next 5 years.
Geographic constraints: Data centers must locate in natural gas-rich regions (like Ohio, Pennsylvania), limiting oversupply risk, but industry worries about future replacement by nuclear or renewables, pressuring valuations (current contract terms mostly 10 years, below industry's preferred 15-20 years).
Policy benefits: Current government is more energy-friendly, with multiple pipeline projects in Appalachian region recently approved, policy side continues releasing positive signals.
**2. Industrial: AI + Reshoring Dual Drive, Order Growth Hits Records**
Investment heating up: Industrial sector has become one of the most "overweight" areas in markets, valuations at historic highs, driven by dual forces of AI (like data center cooling equipment) and "manufacturing reshoring."
Clear demand: Corporate order visibility high for next 2-3 years, especially reshoring projects in semiconductors, pharmaceuticals, defense, with clear government strategic support (like bipartisan US industrial policy).
Power demand reality: Many investors mistakenly think AI is the main cause of surging power demand, but actually AI only contributes about 20-25% of demand growth, with more coming from electrification policies (like heat pumps), EV adoption and manufacturing reshoring - BofA forecasts US power demand annual growth will rise from historic 0.5% to 2.5% post-2025.
**3. Utilities: 6-8% High Growth, Comparable to "Bond-Like Stocks"**
Supply-demand gap: US power supply saw nearly zero growth 2010-2020, now AI + reshoring drive industrial power demand above GDP growth, while aging grids and insufficient new capacity (building a gas plant takes 3 years, turbine queues to 2030) create supply tightness.
Investment value emerging: Regulated utilities (like traditional grid operators) growth jumps from 2-4% to 6-8%, current P/E around 17x, dividend yield 3-4%, combined with 7% EPS growth, annual total return can reach 10%, with market beta only 0.5, exemplifying "low volatility, high return."
Risk points: Policy pressure (consumer dissatisfaction with rising electricity prices may trigger regulatory intervention), management execution (60% of CEO/CFOs have tenure under 4 years, large projects have small error margins).
**4. Nuclear: Low Tech Correlation, Strong Long-term Growth Certainty**
AI + Carbon neutrality dual catalyst: Data centers need stable clean energy, making nuclear the preferred choice; simultaneously under global carbon neutrality goals, small modular reactor (SMR) market size expected to reach $1 trillion by 2050, meeting about 1/4 of current global power demand.
Low correlation advantage: Among all "AI enablers," nuclear shows lowest correlation with Nasdaq 100 (56%), making it quality exposure for diversifying tech sector risk.
Key targets: BofA favors NuScale (signed 66GW SMR agreement with Tennessee Valley Authority), Oklo (vertically integrated SMR deployment, 14GW project pipeline), BWXT (US Navy nuclear reactor supplier, received $2.6 billion orders).
**IV. Investment Recommendations: These ETFs Worth Watching, Balancing Returns and Risk**
For investors with different risk preferences, BofA screened two core ETF categories, covering "AI enabler" opportunities while controlling risk:
**1. Industrial & Infrastructure: High Returns + Low Volatility**
AIRR (Small-Mid Cap Industrial ETF): Focuses on small-mid cap industrial stocks, 1-year return 37.3%, 3-year return 31.2%, risk-adjusted return (Sortino ratio) 1.35, max drawdown 27.9%, "upside beta" to Nasdaq 0.78, "downside beta" 0.68, offering greater upside elasticity than downside risk.
PAVE (US Infrastructure ETF): Positions in infrastructure construction, 1-year return 26.8%, 3-year return 23.4%, Sortino ratio 1.05, max drawdown 26.2%, suitable for investors preferring "steady growth."
**2. Nuclear: Low Tech Correlation, Long-term Allocation Priority**
URA (Uranium ETF): 1-year return 80.6%, 3-year return 25.3%, Sortino ratio 1.48, though max drawdown 37.8%, shows lowest correlation with tech stocks, suitable for diversified allocation.
NLR (Nuclear ETF): 1-year return 71.5%, 3-year return 32.3%, Sortino ratio 1.58, holdings include nuclear operators and equipment companies, benefiting from SMR development.
**V. Risk Warnings: These Three Danger Zones Cannot Be Ignored**
AI capex normalization: If hyperscalers (like Amazon, Microsoft) slow AI-related spending, it will directly impact "AI enabler" demand.
Policy uncertainty: Federal or state governments may adjust energy policies (like restricting natural gas, boosting renewables), or limit utility company electricity prices and ROE.
High correlation risk: Except nuclear, most "AI enablers" show 70%+ correlation with tech stocks, so if Nasdaq corrects, these sectors may decline synchronously.
**Summary**
Current macro environment (rate cuts + excess cash) provides funding foundation for "AI enablers," while supply-demand gaps and policy benefits in energy, industrial, utilities, nuclear sectors make them "more certain opportunities than tech stocks." But investors should note: avoid over-concentrating in high tech-correlated assets, prioritize ETFs like AIRR, PAVE, URA for risk diversification, while watching for potential impacts from policy and capex volatility.
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