Seek resilience in power and resources
CIO Daily Updates
From the studio
From the studio
Thought of the day
Thought of the day
The ongoing US-Israel-Iran conflict and the disruption of energy flows from the Strait of Hormuz have weighed on the more growth-sensitive parts of our Power and resources Transformational Innovation Opportunity (TRIO). This follows a period where global manufacturing activity was just beginning to improve, after a three-year downturn.
A prolonged war could reduce the potential for positive earnings revisions for select companies in the power and resources value chain. One major company noted difficulties in shipping its products into the Middle East, and another flagged challenges in bringing materials to customer sites.
However, we believe the secular trends of electrification and rising energy demand should continue to support sustained growth and capital investment for the Power and resources opportunity.
Industrial companies should stay supported by long-cycle demand. Many global industrial companies are exposed to long-cycle electrical equipment demand, which remains strong, and their contracted order backlogs cover a substantial portion of future revenue. We therefore do not anticipate any meaningful change to the fundamental earnings trajectory for these companies. In fact, high energy prices make rapid technological development and “providers of efficiency” even more valuable. Additionally, we believe process automation companies are well positioned to assist with repairs or deferred maintenance on oil and gas infrastructure affected by the war.
Utilities tend to offer stability in periods of uncertainty. Utilities companies have historically demonstrated their defensive characteristics. And this is also true since the hostilities in the Middle East escalated, with the sector posting smaller losses than the broader market. With fuel costs typically fully passed along to end customers via regulatory fuel adjustments, we expect the sector to stay resilient in the near term. Over longer horizons, high energy prices support investments in grid modernization and projects that diversify fuel exposure, boosting returns on investment for the sector.
Data center demand remains strong. According to one electrical equipment maker, demand for liquid cooling and electrical equipment from data centers continues to be much stronger than investors appreciate. The company flagged USD 7tr of cumulative global capex for data centers between 2025 and 2030, driving a 35% compound annual growth rate in liquid cooling revenue opportunity.
So, we maintain a positive outlook on Power and resources opportunities, which we believe are underpinned by encouraging trends across grid resilience and transmission infrastructure, power generation and renewables, building electrification, industrial automation, and critical minerals. We project USD 32tr of cumulative spending on electrical infrastructure over the next decade.
Investors can access the theme through CIO’s "Power and resources" portfolio, which targets companies across equipment, utilities, facilitators, and materials. This approach captures growth throughout the electricity value chain and allows for dynamic rebalancing as sector leadership shifts. Alternative ways to invest include a mix of passive and active investing that helps balance cost efficiency with the potential for alpha generation. Passive strategies offer broad exposure to established markets, while active management targets less liquid and fast-evolving opportunities, such as those most subject to regulatory changes or technological breakthroughs.
Private market investments—such as infrastructure linked to AI and electrification—may also offer unique access to high-growth areas and inflation-linked cash flows. These investments have shown resilience and low correlation with public markets, providing diversification and stability. However, investors should be mindful of risks like illiquidity and leverage and select managers carefully.