RJ Hamster
The AI Trade Has Changed – Are You in…
The AI Trade Has Changed – Are You in the Right Stocks?
BY MICHAEL SALVATORE, EDITOR, TRADESMITH DAILY
In This Digest:
- Washington and Big Tech are both chasing the next big AI trade
- These top-ranked sectors show where money is flowing
- Two AI giants report earnings today – here’s how they rate
The government just made another big bet on AI…
On Monday, news broke that Uncle Sam is taking a stake in another rare earth company.
The Commerce Department is taking an 8% stake in Oklahoma-based rare earth mining and processing company USA Rare Earths (USAR).
As you’d expect after this endorsement, shares of USAR soared. On Monday, the stock was up nearly 8%.
It’s now up 96% over the past 12 months and up 328% since its low all-time low in March of last year.
I say “another” because last October was when the U.S. Department of Defense bought a 15% stake in another U.S. rare earth miner, MP Materials, worth $400 million at the time.
It’s another example of a major theme we’ve been putting on your radar in these pages over the past several months.
The AI trade is changing shape yet again…
In 2023, the clear winner of the AI trade were semiconductor stocks.
The VanEck Semiconductor ETF (SMH) rose more than 72% that year.
In 2024, the attention shifted to the “hyperscalers” such as Google (GOOGL), Amazon (AMZN), and Microsoft (MSFT) and their massive datacenter buildouts. The Magnificent 7 stocks – which includes these three stocks as well as Nvidia (NVDA), Apple (AAPL), Tesla (TSLA), and Meta Platforms (META) – returned 66% that year.
Then last year, the AI trade shifted again…
This time to the hardware components needed for these datacenters and the semiconductors that go into them. Computer memory companies like Micron Technologies (MU) and chip-making equipment company Lam Research (LRCX) surged 255% and 137% each.
Now in 2026, the most important trend in AI is getting down to the dirt in the ground and the energy required to extract it.
Rare-earth companies are just one part of this trend.
- Copper – a critical component in wiring needed for AI datacenters – is up 39% in the past year and 7% in the last month.
- Lithium – used in energy storage and backup power systems – is up 121% over the last year and 46% just in the last month.
- And silver, a metal used in a wide range of electronics, including circuit boards, switches, and solar panels, is up 265% in the last year and 56% in the last month alone.
All of these materials play a critical role in the AI infrastructure buildout. The recent surge in semiconductors is not just about investor excitement – it’s about scarcity. The same can be said about these metals.
Recommended Link
The AI Power Wars just went nuclear (literally)
On January 9th, Mark Zuckerberg’s Meta Platforms did something historic. To power their new “Prometheus” AI supercluster, Meta just signed massive agreements with three nuclear energy providers. In short… They are securing up to 6.6 gigawatts of carbon-free power… Enough electricity to power roughly 5 million homes. Meta is now the fourth tech giant to panic-buy nuclear energy in the last few months. The biggest, richest companies on Earth are all arriving at the same conclusion: There is no AI future without nuclear energy. Luke Lango believes the U.S. Government is preparing to make its own massive move in this sector. Click here to get the details.
Energy also plays a crucial role in the AI buildout…
Modern AI models require far more compute than traditional cloud applications. A single advanced AI model requires tens of thousands of high-performance chips running continuously. They often consume five to 10 times more power per rack than older enterprise workloads like email servers or databases.
As a result, what used to be a steady rise in computing demand has turned into a near-vertical spike.
A single large AI data center can draw 100 to 300 megawatts of power – roughly the same amount a city of 80,000 to 250,000 people uses.
Collectively, the data centers powering today’s AI models consume as much electricity as a mid-sized country. And the demand is only going to grow.
Everything from coal-fired power plants to fossil fuel refineries to nuclear reactors are playing a role in satisfying spiking electricity demand for AI datacenters.
That makes energy and materials core components of the AI trade right now.
But what separates a lasting investment trend from a flash in the pan?
Big Money…
One of TradeSmith’s most powerful tools is our Quantum Score.
It quantifies the two most critical elements of a market-beating stock:
- Superior fundamentals:companies that are growing their revenues, earnings, and profit margins at a fast pace
- Strong price action: stocks in strong uptrends that are outpacing the broad market’s climb, alongside unusually large buying from big institutional investors
We take these two factors and quantify them into the Fundamental Score and the Technical Score. These can tell you in an instant if a stock is a market leader on either factor.
Then, using a proprietary algorithm, we combine them to form our overall Quantum Score.
The Quantum Score makes it clear if a stock is a dud or stud. If the score is below 75, it’s not a buy. If it’s above 75, it should be at the top of your watchlist.
And that’s just the start of what you can do with it.
Check out the table below. That’s our ranking of each market sector by their composite Quantum Scores, as well as the two factor scores:
This view shows us the average of each score based on all the stocks in each sector. And it reveals that the top-rated sector in the market right now is Energy, with Materials at a close second, also boasting the highest Technical score of the bunch.
You might be surprised to find Technology and Communication near the bottom, assuming that these two areas are where you’d find the most AI stocks.
And you’d be right. The Energy and Materials sectors are not chock-full of companies pushing the bleeding edge of AI.
But for reasons we’ve discussed, they’re still the most important part of the AI trade today. And our quantitative algorithm confirms that they’re not just one-off surges. They’re the top targets for institutional investors.
Let’s isolate the top stock by Quantum Score in these sectors…
No. 1 in the Energy sector is in oil drilling equipment maker Cactus Wellhead (WHD):
WHD boasts a perfect 100 Technical score that’s been on the rise over the past three months. Its Fundamentals are also top tier, at 94.3. And overall, the Quantum Score is about as high as it can go, at 97.7.
Not only is this the top Quantum Score stock in the energy sector, but it’s also the top Quantum Score stock across our entire database.
The top materials sector stock is South African gold miner Harmony Gold (HMY). It’s not directly tied to the AI buildout. But it’s benefitting from the surge in interest in the Materials sector.
That’s also seen recent momentum in both its overall Quantum Score and Technical Score, with both those and the Fundamental rating in the top brass of the overall stock market.
To put these in perspective, out of the more than 10,000 stocks we track, only 145 have a Quantum Score above 90. And only 48 stocks are above 94.
Neither of the two Big Tech stocks reporting earnings today are among them…
Microsoft (MSFT) and Meta Platforms (META) both report earnings today after the closing bell.
They’re both giant AI companies with trillions of dollars and two of the most important bellwethers in the AI trade.
MSFT formed an early partnership with OpenAI and leverages the technology across its Windows operating system. And META has been integrating AI into Facebook, WhatsApp, and Instagram – as well as into its augmented reality Ray-Ban glasses.
All eyes will be on these stocks as they report. And not just because of their involvement in AI.
Both MSFT and META have been laggards in the Magnificent 7 group this year, each of them flat for the year so far. That puts them well behind Amazon, up 7.5% this year and Alphabet, up more than 6%.
One of these stocks is a better buy than the other, according to our Quantum Score. And it’s not Microsoft:
Especially on the technical side, investors have taken MSFT out behind the woodshed. Its Technical score is at 44.1 and falling. Fundamentals are holding steady at 91.4.
META, meanwhile, is in better shape now, but worse shape than three months ago:
Overall, META is just a touch below buy range at 74.5. But note those declining Fundamental and Technical scores over the last three months.
Wall Street institutions are holding out to see if the big tech firms’ massive AI spending will bear fruit. That means lower buying pressure in the short term. We’ll want to see that turn around before we get interested in them again.
Until then, it’s better to focus your attention on the resource and energy companies powering the AI trade – just like Wall Street institutions clearly are.
To building wealth beyond measure,
Michael Salvatore
Editor, TradeSmith Daily
Disclosure: Michael Salvatore holds shares of Alphabet (GOOGL) and Meta Platforms (META) at the time of this writing.
P.S. The moves we’re seeing today make it crystal clear…
Investors can’t afford to cling to old narratives about AI.
Today, the biggest play in AI is where the government is putting real money to work.
That’s exactly the pattern Luke Lango, editor of Early Stage Investorover at InvestorPlace, has been tracking.
Over the past six months, government equity stakes have triggered gains of 111% (MP Materials), 194% (Lithium Americas), and 211% (Trilogy Metals) – sometimes even before the official announcements hit.
Luke believes USA Rare Earth is just the latest domino, and far from last.
And his new Genesis Mission research shows how to spot these moves early – by following the same bottlenecks we outlined today.
Click here for the full details.
