A unique AI trade you’re not hearing from anyone else

Today’s issue in preview:

• A unique AI trade you’re not hearing from anyone else

• This AI trade has become a stock market juggernaut

• How to buy one of the world’s best inflation defense assets

• Our Top Themes to buy now

This AI trade has become a stock market juggernaut

Credit: jiefeng jiang

Do we finally have the beginning of lasting peace?

Today, the stock market is trading on the belief that we do. Over the weekend, President Trump announced that an agreement had been reached to end the war between the U.S. and Iran. In response, the Dow Industrials Average climbed more than 1% to reach a new all-time high. Stocks of many shapes and sizes are rallying.

Avid Money & Megatrends readers will not be surprised to hear the Semiconductor Equipment stock group is leading the market higher.

Today, each of the “Big 3” stocks of the American semiconductor equipment group – Applied Materials (AMAT), Lam Research (LRCX), and KLA (KLAC) – registered new all-time highs. Plus, Teradyne (TER), a smaller semi equipment firm we’ve written bullishly about, climbed 5.8% this morning to reach a new all-time high.

Given AI’s enormous promise, large tech firms such as Google (GOOG), Amazon (AMZN), Microsoft (MSFT), OpenAI, Oracle (ORCL), and Meta (META) have invested over $1 trillion in specialized semiconductors, data centers, and other AI infrastructure components. They are on pace to invest around $700 billion this year alone and more than $3 trillion after that. Both the scale and the velocity of this investment boom are unprecedented. It is the largest collective investment effort of all-time.

Semi equipment makers are one of the most underappreciated players in the global AI semiconductor industry. They do not build semiconductors themselves. Instead, they provide a wide range of critical services and equipment that enable semiconductor production.

They sell chip fabrication machines and chip components and provide testing services, among other vital services that keep the semiconductor industry going. They sell picks and shovels to the companies making picks and shovels.

No semiconductor equipment industry, no AI boom.

AMAT, KLAC and LRCX are the three U.S. leaders in semiconductor equipment. Each firm holds a dominant role in the AI semiconductor equipment industry, is enjoying terrific revenue growth, and is experiencing a strong uptrend. They are all up more than 100% over the past year.

On March 20, I detailed how these three stocks were holding up well during the Epic Fury-induced market decline. This “relative strength” was a bullish sign. It was a “tell” from the market… that the fundamental forces driving these stocks are very strong. And this week, those fundamental forces drove the semi equipment group to new all-time highs. They are up an average of 65% since our March 20 note.

In other words, it’s good to be on the receiving end of the largest investment boom of all time. Today’s breakout reinforces our bullishness on the semiconductor equipment theme.

A unique AI trade you’re not hearing from anyone else

Credit: Bim

It turns out, being bullish on “AI chemicals” was a good idea.

This morning, two stocks in our AI chemicals basket – Entegris (ENTG) and Element Solutions (ESI) – each jumped more than 4% to reach new all-time highs.

On March 6, we wrote bullishly on chemical firms positioned to benefit from the massive AI infrastructure boom. AI is the fastest-evolving technology in history. Given its enormous promise, big tech firms like Meta (META), Google (GOOG), Amazon (AMZN), and Microsoft (MSFT) are in an epic race to build the world’s best AI models and infrastructure.

They’ve already spent more than a trillion dollars. This year, they are on pace to spend over $700 billion on AI infrastructure, with more than $3 trillion expected to follow. It’s the largest collective investment effort in all recorded history.

In our original AI chemicals analysis, we said this super boom will benefit well-positioned chemical firms.

The chemicals industry is commonly thought of as an “old economy” business that produces products such as plastics, paints, solvents, cleaners, and pesticides. However, some chemical firms are involved in “brand new economy” activities related to AI.

The chemicals industry sits upstream of almost every physical component in the AI stack: from the specialty gases and materials used to manufacture semiconductors to the high‑purity solvents, coatings, coolants, flame retardants, and advanced polymers that make modern data centers possible.

Every AI server relies on a long chain of ultra-specific and ultra-pure chemicals. As AI usage explodes, the need for more chemicals and more sophisticated, higher-purity ones increases.

In our March 6 issue, we named Element Solutions, Entegris, and Chemours (CC) as chemical companies poised to benefit from surging AI-related “demand shocks.” Chemours, for example, recently reported a 37% year-over-year surge in its quarterly Opteon refrigerant sales… driven by AI data center cooling demand.

But don’t take our word on the bull case for AI chemicals. Take the market’s word. It knows far more about the chemical business than I or anyone else. Since our March 6 note, Chemours has climbed 36%. And today, Element Solutions and Entegris surged to new all-time highs. They are up 41% and 38*% respectively since our original note.

In other words, the trend in AI chemicals is up.

AI is the fastest-evolving technology in history. Big tech firms are spending record amounts of money to fuel its progress. This will continue to create big “demand shocks” and investment opportunities. It looks like this is starting to happen in the AI chemicals group.

How to buy one of the world’s best inflation defense assets

Credit: Douglas Rissing

On May 19, I profiled timberland giants Weyerhaeuser (WY) and Rayonier (RYN) as relatively cheap assets you can buy to protect your wealth against inflation.

Now that nearly a month has passed since that recommendation, we can say “So far, so good” for this position. WY and RYN are both up 10% since our recommendation less than one month ago.

You probably know why being vigilant against inflation is important: governments in most Western nations have promised far too many things to far too many people. They are spending far more on taxpayer benefits and wars than they collect in tax revenues.

The related debts and obligations governments have taken on cannot be paid back with sound money. They can only be paid back with debased, devalued money… much of which is created out of thin air. This is driving inflation and significant currency debasement. I estimate the dollar is losing value by at least 6% per year. Put differently, prices are going up because the value of our money is going down.

It’s important to note that the prices of scarce resources are going up. Things that cannot be easily produced or replicated. Things you can’t print. Gold. Copper mines. Oil and gas pipelines. Rolexes. Beachfront homes. These are proving to be sound “debasement” hedges.

This brings us to timberland….

For centuries, quality timberland has been a preferred hedge against currency debasement and an asset class of the wealthy. This is the case for multiple good reasons…

• Quality timberland is a “living asset.” Your “crop” grows regularly with minimal capital expenditure.

• Timberland yields in-demand products, such as lumber and paper, which generate income for the owner.

• These income streams can be augmented by leasing timberland to hunters, campers, and farmers.

• You can delay timber harvests when prices are low and keep the “crop” growing.

• Occasionally, a real estate developer will show up at your door and offer you ridiculously high prices for some of your acres.

These qualities make timberland an asset that steadily grows in value and keeps pace with the rate at which voters and their elected representatives debase the currency via profligate spending. Timberland has returned around 10% per year for decades… with low correlation to the stock market.

And here in the AI age, timberland has the treasured quality that, like beachfront homes and copper mines, it cannot be coded into existence by AI.

If you like the idea of owning timberland, you can buy it in private transactions and enjoy a walk in the woods.

Or, you can buy timberland in the stock market via big timberland REITs, Weyerhaeuser and Rayonier. They own huge tracts of timberland across the U.S. They manage them for investors who understand the benefits of timberland ownership. Since they are structured as REITs, they pay decent dividends. WY’s current yield is 3.4%. RYN’s current yield is 4.7%.

Over the past four years, owning WY and RYN has not been a pleasant walk in the woods. Since these businesses generate significant revenue from lumber sales, they are exposed to the ups and downs of the U.S. housing market, which is struggling with high mortgage rates and affordability challenges. Both stocks are down more than 10% over the past three years.

Many investors will look at the weak housing market and poor recent returns of housing-related stocks and say to avoid WY and RYN. However, it’s only when sentiment is terrible towards a cyclical sector like housing that you can get good value for your investment dollars. If you’re looking for relative bargains in the “inflation defense” section of the stock market, you’ll find one in timberland.

Market Notes

• Our recommendation to ignore the AI bears and stay long AI infrastructure continues to pay off. Semiconductor supply chain leaders AMD (AMD) and ASML (ASML) advanced to new one-year highs today. The group continues to reward patient holders since our recommendation.

• Data storage leaders broke out to new all-time highs today. Sandisk (SNDK), Seagate (STX), and Western Digital (WDC) all hit new highs. These names continue to benefit from the insatiable demand for AI-driven storage infrastructure.

• Hotel giants Marriott (MAR) and InterContinental Hotels Group (IHG) reached new all-time highs today. They are joined on the new highs list by travel and leisure leaders Host Hotels (HST), Marriott Vacations (VAC), Park Hotels (PK), and Viking Holdings (VIK, cruises). These are bullish economic signals.

• Airlines Delta (DAL) and United Airlines (UAL) reached new highs today. The American consumer continues to travel with enthusiasm. These are bullish economic signals.

• Our February 6th recommendation to own robotics component maker Vishay Precision Group (VPG) just hit a new high. It’s now up 178% since our recommendation.

• Our October 21st recommendation to own machine sensory perception firm Ouster (OUST) is up 15% today. It’s now up 155% in the last year.

Regards,

Brian Hunt
Editor, Money & Megatrends

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