Economies have always needed energy to grow wealth. The rise of AI, the next frontier of global economic growth, has ramped up energy requirements in developed countries at a time when many were already facing significant energy shortages.
These factors alone have large implications, both for the price of energy and the sources of it in the future. Geopolitical uncertainty, technological change and environmental considerations, as well as advances in energy technology, add further complexity to the situation.
Oil vs. alternative energy sources
Historically, oil price shocks have always resulted in people tapping into their savings and investments to meet rising prices. This then causes downward pressure on economic growth. In South Africa, our dependence on large oil imports makes us particularly susceptible to rising oil prices.
On the positive side, alternative energy sources such as wind and solar have become increasingly price competitive over time and this trend should continue globally. As an example, renewable energy is now, at times, responsible for almost half of electricity generation in Texas, USA. Solar panel exports from China have been significant in recent years; at the present rate, it takes about eight months to reduce oil demand by one million barrels per day.
What about coal?
Coal-based power remains central to the Chinese economy. Their use of coal only reduced for the first time in 2025, with renewable energy sources typically covering the incremental demand for energy.
Cars, buses and motorcycles: finally going electric?
There has been a noticeable increase in global demand for electric and hybrid motor vehicles, particularly since the Strait of Hormuz closures this year. Nevertheless, sales of the traditional Internal Combustion Engine (ICE) vehicles still account for the majority of new vehicle sales as of today.Â
From the South African perspective, reduced demand for ICE vehicles with catalytic converters will be detrimental to South African platinum mining revenues.
AI: data centre development, products and monetisation
The AI technology boom in the United States has been significant and is now responsible for almost 40% of American economic growth. The planned capital expenditure for the building of data centres over the coming years is unprecedented, despite attendant environmental concerns and public opposition.Â
Simultaneously, the debate in investment circles is whether technology providers will be able to monetise their investments successfully in future – how much will consumers actually be willing to pay for AI products, and which companies will ultimately be the winners (and losers) in a very competitive environment? The answers will become clearer over time.
Pertinent AI investment considerations
There are numerous and significant investment considerations arising from these developments. Investment managers need to decide at which level of the AI chain they are willing to invest: energy generators, semiconductor chip manufacturers, cloud computing infrastructure providers, AI model providers or software application providers are some examples.
What’s the right price to pay?
As always, it is important to consider the entry price for an investment, no matter how exciting the technology or growth prospects may be. There are also multiple ways to participate in a new industry – for example, both AI and renewable energy have high demands for copper. An investment in a traditional copper mine could be a sensible decision!
Caution, and balancing one’s options
It is impossible to predict with certainty where all of this will go. The current investment challenge is to identify a range of different companies, across the AI and energy ecosystems, that are durable and likely to benefit from overall industry growth.Â
Careful consideration of these companies’ share prices is required, as there is a strong probability that optimistic profit forecasts have already been factored into them.
From an overall investment portfolio perspective, at Netto Invest we are also mindful of the need to blend a suitable combination of active investment managers and passive index funds to reflect a variety of views and research efforts. The overall investment landscape is simply too complicated and uncertain to rely on a single view of how events may unfold in the years ahead.
Richard Sparg, CFP® CA(SA)
