How To Gain Exposure To The Critical Materials Powering Artificial Intelligence And Meeting Growing Energy Demands Through Sprott ETFs

For risk disclosures and other important information about the ETFs discussed below, please refer to the end of this article.

The technological landscape is expanding, with AI poised to play a crucial role in the next generation of computing. With many notable companies establishing or integrating AI capabilities into their technological infrastructure, a common realization has been the high energy cost associated with AI development, particularly concerning data centers. Against this backdrop, many firms are exploring new energy sources, which rely heavily on critical materials such as copper, uranium, nickel and lithium, to power their AI data centers. In turn, the growing need for energy to power AI data centers is increasing the demand for critical materials, which can potentially benefit investors that maintain exposure to them.

AI And The Need For More Energy

As the adoption and advancement of AI continue to accelerate, the demand for electrical power to sustain data centers – which support cloud computing, big data processing and AI algorithms – is also on the rise. As reported by the International Energy Association, data centers' electricity demands are forecasted to grow 258% from 2023 to 2030. Therefore, the electricity demand from global data centers is expected to increase from 1.2% of global electricity supply to 4.1%.

With the creation and usage of generative AI tools across many industries, hyperscale data centers – a specialized category of data center designed to power immense amounts of digital information and computational tasks – have become a point focus for many. As noted in a recent World Economic Forum article, AI requires significant computing power, and generative AI systems might already use around 33 times more energy to complete a task than task-specific software would. Simply put, the iterative learning that is innate to generative AI systems means they can never be turned off, resulting in their high energy consumption.

Using Sustainable Energy As A Power Source Of AI Development

Recognizing the high energy requirements for AI data centers, big tech firms such as Amazon AMZN, Alphabet GOOGL, and Microsoft MSFT* are among the first to explore using sustainable energy sources, including wind and solar, to power their business operations, such as data centers. As detailed in a recent report from Sprott ETFs, Microsoft recently inked a deal with Brookfield Asset Management for more than $10 billion to develop renewable energy capacity to help power data centers. Under the agreement, Brookfield will deliver 10.5 gigawatts of renewable energy to Microsoft between 2026 and 2030 in the U.S. and Europe. Google has also invested billions in data centers over the last several years, bringing its current total to 23 data centers in 15 states. Furthermore, Amazon Web Services recently acquired a 960-megawatt nuclear-powered data center in Pennsylvania from Talen Energy.

While Amazon's acquisition of a nuclear-powered data center may seem excessive to some, it circumvents a problem inherent to solar and wind energy – they are intermittent in nature. As such, firms are now exploring nuclear energy as a viable power source. Nuclear power can help fulfill the massive electricity needs of AI. Small modular reactors (SMRs) are advanced nuclear reactors with a power capacity of up to 300 Megawatts electrical (MWe) per unit – about one-third of the generation capacity of traditional nuclear power reactors. SMRs can produce a large amount of low-carbon electricity and are becoming a source of energy for AI data centers.

Gaining Investment Exposure To Critical Materials

As big tech firms find different avenues to power their data centers, there may be increased demand for the critical materials needed to generate, transmit and store cleaner energy. This may present an opportunity for some investors, as having material exposure to these essential resources allows them to benefit from the gradual price appreciation that may occur.

Sprott Copper Miners ETF

Copper's exceptional electrical conductivity and contribution to energy efficiency make it a critical element in energy transmission. As the global economy moves toward decarbonization and electrification, emerging clean-energy technologies will likely require significantly more copper than traditional systems. For investors looking to gain exposure to copper, both the Sprott Copper Miners ETF COPP and Sprott Junior Copper Miners ETF COPJ provide pure-play exposure to a broad range of copper miners potentially positioned to capitalize on the increased demand for copper and its usage in electrification.

Though both funds share a thematic focus on capitalizing on the growing demand for copper and its integral role in transitioning to a carbon-neutral society, COPP provides comprehensive exposure to mining companies across the large, mid- and small-capitalization spectrum. In contrast, COPJ predominantly focuses on small copper miners, with the potential for significant revenue and asset growth. 

Sprott Uranium Miners ETF

The growing demand for energy globally and the need to move away from fossil fuels seem to be setting the stage for nuclear power. The appeal of nuclear power starts with its reliability, as the intermittent nature of solar and wind energy does not allow for surety in long-term power generation. Regarding safety, nuclear power plants have advanced in recent decades and the technology has evolved so that plants operate and maintain reactors more efficiently. This translates to fewer, shorter disruptions in the reactors' consistent production of electrical power. Finally, nuclear power is clean, as it generates the lowest greenhouse gasses of any power source.

Essential to nuclear energy is uranium, a very heavy metal that can be used as an abundant source of concentrated energy for nuclear reactors. Both the Sprott Uranium Miners ETF URNM and Sprott Junior Uranium Miners ETF URNJ  provide investors with exposure to companies in the uranium mining industry, which may include mining, exploration, development and production of uranium or holding physical uranium, owning uranium royalties, or engaging in other, non-mining activities that support the uranium mining industry. The underlying index which URNM tracks, the North Shore Global Uranium Mining Index, reflects companies that devote at least 50% of their assets to the uranium mining industry. Meanwhile, URNJ reflects the performance of mid-, small- and micro-cap companies in uranium mining-related businesses. 

Sprott Nickel Miners ETF

One of the things that data centers need during periods when they might not have excess energy if they're using solar or if there are other infrastructure problems is battery backups. Innovation within battery design seems to be proving that nickel-zinc battery chemistry has a high energy efficacy rating, resulting in a much denser battery, which means it takes up less space – which is at a premium inside AI data centers and can operate at a much higher temperature.

The Sprott Nickel Miners ETF Fund NIKL aims to capitalize on the growing demand for nickel and the integral part it will play in the transition to a carbon-neutral society. The ETF tracks the Nasdaq Sprott Nickel Miners™ index, which is designed to track the performance of a selection of global securities in the nickel industry, including nickel producers, developers and explorers.

Sprott Energy Transition Materials ETF

For investors seeking comprehensive exposure to the entire critical minerals landscape, the Sprott Energy Transition Materials ETF SETM facilitates this investment action through a broad-based selection of global securities in the energy transition materials industry. SETM tracks the performance of the Nasdaq Sprott Energy Transition Materials™ Index, which reflects companies that have exploration, investment and economic ownership over energy transition materials. The index generally consists of 100 to 200 constituents, indicating the investment breath and diversity that will be present in the ETF.

Investing In Critical Materials At A Crucial Point In Time

As more companies express interest in and commit capital to AI development, there may be an increasing demand for energy sources to power their initial establishment and ongoing operational maintenance. With many big tech firms utilizing clean energy in AI data centers and global decarbonization goals, critical materials – such as copper, uranium and nickel – are necessary for this energy transition to occur and could grow in value over time due to their limited availability, geographical concentration of production, vulnerabilities in the supply chain and the absence of easily accessible substitutes.

 Featured photo by Taylor Vick on Unsplash.

*As of 9/20/24, these equities are not held in any of the discussed ETFs.

This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice. One may not invest directly in an index.

Important Disclosures

Before investing, you should consider each Fund's investment objectives, risks, charges and expenses. Each Fund's prospectus contains this and other information about the Fund and should be read carefully before investing.  A prospectus can be obtained by calling 888.622.1813 or by clicking these links: Sprott Energy Transition Materials ETF Prospectus, Sprott Uranium Miners ETF Prospectus, Sprott Junior Uranium Miners ETF Prospectus, Sprott Copper Miners ETF Prospectus, Sprott Junior Copper Miners ETF Prospectus, and Sprott Nickel Miners ETF Prospectus.

The Funds are not suitable for all investors. There are risks involved with investing in ETFs, including the loss of money. The Funds are non-diversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a diversified fund.

Exchange Traded Funds (ETFs) are bought and sold through exchange trading at market price (not NAV) and are not individually redeemed from the Fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns. “Authorized participants” may trade directly with the Fund, typically in blocks of 10,000 shares.

Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of experiencing investment losses. ETFs are considered to have continuous liquidity because they allow for an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund's performance.

Sprott Asset Management USA, Inc. is the Investment Adviser to the Sprott ETFs. Sprott Asset Management LP is the Sponsor of the Funds. ALPS Distributors, Inc. is the Distributor for the Sprott ETFs and is a registered broker-dealer and FINRA Member.

ALPS Distributors, Inc. is not affiliated with Sprott Asset Management LP.