Big tech companies are making massive investments in AI data centers, with close to $700 billion being spent this year alone. While much of the focus is on chipmakers like Nvidia, two very different companies recently reported earnings that shed light on the significant amount of money flowing to businesses that don’t produce chips: a copper miner and a company that owns and leases out data center buildings.
Freeport-McMoRan Inc. (NYSE:FCX) exceeded expectations in their latest earnings report. The copper mining giant posted earnings of 74 cents per share, excluding one-time costs, surpassing the 59 cents per share that analysts had predicted. Net income came in at $984 million, or 68 cents per share, up from 53 cents per share a year ago. Surprisingly, Freeport actually mined 18.2% less copper this quarter, with the beat attributed to the rise in copper prices, which increased by 41.5% from the previous year. The spike in prices was driven by supply concerns and strong demand from China. The company’s production decrease was due to ongoing recovery efforts at its Grasberg mine in Indonesia following a fatal mud flow incident last September. Despite the positive earnings, Freeport’s stock fell 2.3% following the results announcement.
Copper is a crucial material for conducting electricity and is used in various industries worldwide, including motors, computers, batteries, and wiring. As the demand for AI infrastructure continues to grow, the need for copper is expected to remain strong for the foreseeable future, even though the recent earnings beat was primarily driven by price rather than an increase in AI-related demand.
Digital Realty Trust, Inc. (NYSE:DLR) operates in a more direct link to AI spending as the company owns and leases data centers. In their latest quarter, revenue surged by 29% to $1.92 billion, surpassing analysts’ expectations of $1.66 billion. Core FFO came in at $2.65 per share, well above the expected $1.86, with the company raising its full-year guidance. Digital Realty also closed a significant deal to acquire a larger stake in three data centers in Northern Virginia, the world’s largest data center market. The company’s strong performance led to a 3% increase in its stock price, with analysts raising price targets and upgrading their ratings.
The contrasting performances of Freeport-McMoRan and Digital Realty highlight the different ways in which companies can benefit from the AI boom. While Digital Realty is a more direct play on AI infrastructure spending, Freeport’s exposure to AI is just one aspect of its overall copper demand story. Investors should consider these factors when evaluating which stock aligns best with their investment strategy.
Insider Monkey’s hedge fund data analysis shows more confidence in Digital Realty Trust than in Freeport, with the former being held by 46 hedge funds and the latter by 82. Digital Realty is seen as a more direct bet on AI infrastructure, while Freeport’s exposure to AI is part of a broader demand narrative.
In conclusion, both Freeport-McMoRan Inc. and Digital Realty Trust had strong quarters for different reasons, reflecting their unique positions in the AI ecosystem. Investors seeking a more direct play on AI infrastructure may find Digital Realty more appealing, while those looking for a longer-term, cyclical bet with AI as a component may consider Freeport. It’s essential to weigh the risks and potential of each investment opportunity carefully to align with your investment goals and risk tolerance.
