As AI powers a new boom, Roscoe Widdup says energy investing requires you to leave your politics at the door
Energy demand from data centres has sent the US electricity market back into growth mode, and Roscoe Widdup views it as a big opportunity.
Energy regarded as a tough place to invest, especially if you're only looking at upstream oil and gas
AI data centres ramping up electricity demand
Roscoe Widdup invests across the electricity supply chain to find value in the sector
Energy is a notoriously tough place to invest right now, especially if you're a believer in old school oil and gas.
The ASX energy index is down close to 2% YTD, but take a broader view of the trends in global energy and electricity markets and there could be gains to make.
Triple Eight Capital portfolio manager Roscoe Widdup thinks using a more nuanced and research focused approach to the space can help investors tune down the noise and deliver returns.
Traded through the Cboe exchange under the ticker T8EV, Triple Eight's Energy Vision, one of two strategies managed by the Melbourne fundie alongside a gold fund, is sitting on 29.5% YTD gains up to the end of October.
It clocked a 5.7% gain in the month despite global market volatility, lifting its return since inception to ~75%.
Widdup's thesis is that the US energy market is in a new growth phase, with AI data centres jacking up demand for the first time in two decades in 2024.
"How on Earth is that possible? That's been driven by some energy efficiency, but also globalisation, the exporting of heavy industries south of the border, north of the border and into places like China," Widdup said.
"Donald Trump, as part of his platform is addressing some of that. But the thing that's changed in the short term is data centres.
"Data centres resulted in electricity growth significantly above trend in 2024. In the US, data centres accounted for between 4 and 5% of total US electricity generation and the lowest projections by the end of the decade is that demand for electricity will more than double from data centres.
"That creates a really interesting environment where you have had a stagnating, no growth environment suddenly flipping to very competitive, very aggressive, rapid growth that creates opportunities."
How will that be met?
The next stage is identifying where that creates opportunities.
There are three ways that can be met – renewables in the short term, gas in the medium and nuclear in the long – all will face criticism from different ends of the political spectrum, but all – from Widdup's perspective – will be essential.
"The perception under Trump is that demand will be met by gas fired generation and nuclear. The perception under the prior administration was that it would all be solar and wind," Widdup said.
"The reality is, both of those prophecies are unrealistic and what we believe is the realistic scenario ... is actually a balanced mixture, subject to the geographic endowments, subject to the types of demand.
"We're heavily positioned in existing electricity generation, transmission and distribution, and that's diversified across different parts of the US and Europe and Asia.
"And the balance of the portfolio is in the supply chains of those industries, so the building blocks that we have exposure to in the portfolio are generation, transmission and distribution, energy storage, electrification, and then their supply chains.
"Anything from the metals that go into the wires and the transformers and the batteries. To technologies like power and energy focused microchips."
Widdup says that approach has generated a return that's roughly double the return of global equities so far this calendar year.
Options available
"Let's reflect on this rapidly growing demand for electricity from data centres. This is an incredibly competitive industry and AI models can't be trained without access to sufficient electricity," Widdup said.
"We may be in a market renaissance for nuclear, and gas is going to be part of the medium term solution for this conundrum."
But Widdup says you can't throw the baby out with the bath water by taking political sides on energy.
"If you or I went out and tried to procure a large turbine in the US today, we might get it by 2029, but most likely 2030, and it would cost us based on the balance of our research, right to the minute, 30 to 40% more than what we would have factored in on Trump's Election Day," he said.
"Which suggests that gas is a solution in the medium term but there are some headwinds in the short term."
While small modular reactor technology is developing, it's not yet proven at scale – the key attribute that makes nuclear power so attractive to operate.
Nuclear lead times are even longer than gas, and while Widdup is a believer in the nuclear thematic, AI is bringing new energy demand online that is too impatient to wait for new generation.
There are bottlenecks for renewables as well, with energy storage not yet far enough developed to account for the challenges of intermittency in wind and solar power.
"There are bottlenecks which is another one of the reasons that underscores our belief in the value of existing infrastructure, existing generation capacity," Widdup said.
"We expect to see a continuation of the theme we're in, which is rising electricity prices, bottlenecks to introducing that new supply, which looks like a great market to us."
Building the moat
Triple Eight tends to look for stocks, the bulk of them overseas listed, which have a moat when it comes to existing electricity capacity, supplying poles and wires, cables or infrastructure.
Among the firms in the portfolio are Nordex, a German manufacturer of wind turbines that has lifted 125% YTD, Vestas, another wind player up close to 50% YTD, US solar panel manufacturer First Solar and Nextpower (formerly Nextracker), a Nasdaq listed company which monitors the health of solar panels. Its shares have lifted ~130% YTD.
Widdup's key picks today have large existing positions within key parts of the US energy grid, where the growth drivers of rising AI electricity demand are most evident.
"Let's start in the US and we love stocks like Duke Energy, a big diversified electricity generator in the US exposed to nuclear, renewables, gas, diversified across those generations slates," Widdup said.
"We believe that diversification is really important (giving) optionality and capability to exist in this evolving technology environment.
"From a T&D (transmission and distribution) perspective, a company like Exelon owns significant transmission and distribution infrastructure within a segment of the US grid called the PJM, which is a hotbed for data centre development.
"Just reflect on a business like that which owns, simply put, poles and wires. Valuing a business like that with stagnant or declining volume of electricity passing through those poles and wires, is unlikely to lead to an attractive valuation.
"When we enter a period of rising volume of electricity through those poles and wires, that's a really simple but a really great fundamental tailwind for the value of those assets."
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead.
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Originally published as As AI powers a new boom, Roscoe Widdup says energy investing requires you to leave your politics at the door
