Why I Like This Industrial Metal ETF More Than Ever

Last November, I wrote about investing in copper because of how critical it is to the AI build-out. I recommended putting $1,000 into the Global X Copper Miners ETF (NYSEMKT: COPX).

Had you done so when the article was published, your investment would be worth about $1,460 today, as the COPX ETF has surged from about $60 to $88 over that time, a 46% gain. For comparison, the S&P 500 index has gained about 13.5% during that period.

My reasoning for investing in COPX in November was sound. I wrote: "Global data center electricity consumption is expected to rise from 2% of global demand today to 9% by 2050, and demand for copper in those facilities is expected to increase sixfold." Six months later, the AI infrastructure race among so-called hyperscalers like Meta Platforms, Microsoft, Amazon, and Google parent Alphabet has only intensified.

Fear of Missing Out (FOMO) is driving that race, according to Apollo Chief Economist Torsten Slok. Despite expectations of Federal Reserve interest rate hikes later this year, Slok says that AI data center capital expenditure (capex) is not sensitive to higher rates. In fact, he states that "there are no signs that the market is expecting a slowdown in AI capex next year."

Companies worldwide spent almost $1 trillion on data centers last year, according to McKinsey & Company. That's projected to reach $4 trillion by 2030. Data center capital expenditures are expected to rise 3.7% next year over the 2026 level. That forecast itself continues to be revised higher. In January, it was 3.4%.

Strong data center capex several years into the future is a great reason to be bullish on copper prices. A traditional data center requires between 5,000 and 15,000 tons of copper. AI data centers, in contrast, can need up to 50,000 tons of copper per facility, according to the Copper Development Association.

That massive increase in demand is driven by the higher energy intensiveness of AI data centers, which makes copper's superior conductivity essential. Copper is also critical to the liquid-cooling systems and heat exchangers that AI centers need to dissipate intense heat effectively. The high-speed data transmission that AI centers need is also dependent on copper.

Image source: Getty Images.

You can see the effect of rising demand on copper prices. The spot price of the red metal has increased from about $486 per pound one year ago to around $656 a pound today. That's a 35% increase.

Copper remains sensitive to the economic outlook

The price of copper took a brief hit at the start of the war in the Persian Gulf this year, amid concerns that the conflict could trigger a global economic slowdown. The price of copper has historically been extremely sensitive to macroeconomic forecasts, as many global industries rely on copper, from housing to automobile manufacturing.

But the price of copper has rebounded strongly over the past two months, and prices have been underpinned by supply tightness due to limited new mine supply, according to S&P Global.

Temporary factors will continue to move the price of copper -- and thus ETFs based on it, like COPX -- around. The war in the Gulf is the primary macroeconomic factor right now, as it has the potential to both decrease economic growth and drive inflation higher.

But positive longer-term structural trends remain in place for copper. Those include the rise of electric vehicles and renewable energy sources such as solar and wind, both of which are copper-intensive. Now, the AI infrastructure build-out is taking copper demand to a new level.

If last November was a good time to invest $1,000 into a solid copper fund, now is even better.

Matthew Benjamin has positions in Alphabet and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.