Citi’s Kaiser Says Power Generation Is AI’s ‘Hardest Bottleneck To Fix’

Citi’s Stuart Kaiser told Bloomberg that rising yields and election-related affordability headlines are pressuring utilities, a backdrop he argues keeps AI’s power bottleneck tight.

• Citi’s AI research team estimates about $1 trillion of AI-related capital spending next year and nearly $4 trillion by 2030.
• Kaiser said AI-related capital spending is committed for the next 12 to 24 months unless something significant changes.
• There is a lot of bullishness around healthcare, particularly around how AI can help with drug development, Kaiser said.

Stuart Kaiser, head of U.S. equity trading strategy at Citi, said power generation remains an attractive medium-term artificial intelligence (AI) theme, though the firm in September urged caution ahead of the elections over affordability and power-cost headlines.

In an interview with Bloomberg, Kaiser said, “We’ve been very, very bullish on the AI power generation theme”. Kaiser’s comments come as Citi shifted back toward a more positive view on equities ahead of third-quarter earnings. 

He noted that many institutional investors had de-risked over the summer and then largely stayed cautious ahead of September’s heavy event risk. 

Power Remains A Key AI Constraint

Kaiser said utilities faced two issues, rising yields and the election, and that neither is going away in the near term. Political and affordability pressures are "bad for the AI trade in the sense that you're not going to be able to construct the megawatts of power" required, he said.

For the power-generation trade itself, however, he called the constraint the "hardest bottleneck to fix." "It actually keeps that bottleneck tighter for longer," he said, which makes the trade "even more attractive over the medium term."

Citi's AI research team estimates about $1 trillion of AI-related capital spending next year and nearly $4 trillion by 2030, Kaiser told Bloomberg. 

Unless something significant changes, that spending is committed for the next 12 to 24 months and will "trickle down into earnings growth for the entire market," he said.

Healthcare Joins The AI Growth Trade

According to the Citi strategist, there is a lot of bullishness around healthcare, particularly around how AI can help with drug development. Aside from technology, large-cap healthcare “has become the AI growth trade” operating alongside it, Kaiser said.

So far this year, the State Street Health Care Select Sector SPDR ETF (XLV) has risen 7.07%, while the State Street Utilities Select Sector SPDR ETF (XLU) has fallen over 7%. Over the same period, the iShares US Power Infrastructure ETF (POWR) has risen around 4%.

See Also: UMC Stock Slides After $1.8B Convertible Bond Pricing — Proceeds To Fund Equipment, Plant Expansion

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