Bank of America's heavyweight report: AI "water sellers" are winning! Where could global funds flow next?

The Federal Reserve will cut interest rates, American households have $19 trillion in cash to be allocated, and in the AI industry chain, "water sellers" are outperforming technology stocks... Recently, Bank of America released "The RIC Report: The AI Enablers are Winning", breaking down the current macro trends, AI industry chain investment opportunities, and risks. Today, we will help you understand the core points of this report and see where global funds may flow next. 1. Macro Background: Interest rates to be cut, $19 trillion in cash "urgently seeking allocation" Bank of America's latest forecast shows that, influenced by weak August nonfarm payrolls data, the Federal Reserve may cut interest rates twice this year, then three more times in 2026, ultimately bringing the rate down to around 3.25%. Currently, American households hold $19 trillion in cash, 30% higher than pre-pandemic trendscash returns are being eroded by inflation and taxes, and this portion of funds urgently needs to find a more optimal allocation direction. From economic data (see chart below), in August, "soft data" (investor sentiment, consumer confidence, etc.) showed a slight improvement, with the ISM new orders index, Conference Board Consumer Confidence Index, and others rising to below-average levels by 0.4 standard deviations; "hard data" (economic activity indicators) remained stable, above the long-term average by 0.3 standard deviations, showing an overall trend of "weak recovery but not recession". In the fixed income sector, Bank of America recommends: long-term bonds can be used for trading allocations, but AAA-rated loan funds with lower volatility are more secure; in the stock market, the focus should be on "AI enablers"these assets have significantly outperformed the market over the past two years. 2. AI Enablers: Outperforming the "hidden champions" of the Nasdaq, but correlation risks are increasing The so-called "AI enablers" refer to sectors that provide the foundational support for the AI industry, including electricity producers, infrastructure and industrial companies, nuclear energy companies, pipeline MLPs (master limited partnerships) and other "water seller" sectors. Data from the report shows that these sectors have outperformed the Nasdaq 100, which is mainly composed of technology stocks, over the past two years: for instance, utilities, industrial equipment, nuclear energy, pipeline MLPs, among others, have not only delivered high absolute returns, but some sectors also have better risk-adjusted returns (such as the Sharpe ratio). However, it is important to be cautious as the correlation of these "AI enablers" with technology stocks is reaching new highs: the correlation of non-regulated electricity producers and natural gas pipeline companies with the Nasdaq 100 is at 71%; small and mid-cap industrial stocks have a correlation of 86%; electric grid infrastructure has a correlation as high as 92%; only uranium mining and nuclear energy companies have a lower correlation (56%). Bank of America warns that this high correlation means the market is becoming "highly tied to AI demand"if AI customer spending or capital expenditures of hyperscaler tech companies slow down, these sectors may experience pressure simultaneously, posing a risk of "rising or falling together". 3. Key Sector Breakdown: Energy, Industrial, Utilities, Nuclear Energy Investment Logic To further analyze the opportunities of "AI enablers", Bank of America's analyst team conducted roundtable discussions with experts in the energy, industrial, utilities, and other sectors to outline the core logic of each sector: 1. Energy: Natural gas sees "double positives", LNG exports becoming a new engine Surging demand: Data centers' demand for natural gas, combined with the lifting of the ban on liquefied natural gas (LNG) exports in the U.S., has led to a revaluation of the natural gas sector. Previously, the market believed that natural gas demand would decline after 2030, but with the acceleration of LNG export facility construction, the next 5 years will see a "second growth curve" in the natural gas sector. Geographic constraints: Data centers need to be located in regions rich in natural gas resources (such as Ohio, Pennsylvania), which limits the risk of oversupply; but industry concerns are that in the future, natural gas may be replaced by nuclear energy or renewable energy, leading to valuation pressure (current contract terms are mostly 10 years, lower than the industry's expectation of 15-20 years). Policy dividends: The current government is more friendly towards the energy industry, with multiple pipeline projects in the Appalachian region recently approved, continuing to signal positive support from the policy side. 2. Industrial: AI + reshoring driving order growth to record levels Increased investments: The industrial sector has become one of the most "overweight" areas in the market, with valuations reaching historical highs, driven by both AI (such as data center cooling equipment) and the "reshoring" of manufacturing. Clear demand: Over the next 2-3 years, there is high visibility on corporate orders, especially in reshoring projects in sectors like semiconductors, pharmaceuticals, and defense, with clear governmental strategic support (such as industrial policies promoted by both U.S. political parties). The truth about electricity demand: Many investors mistakenly believe that AI is the main driver of increased electricity demand, but in reality, AI only contributes around 20-25% of demand growth, with more coming from electrification policies (such as heat pumps), the popularization of electric vehicles, and reshoring in manufacturingBank of America predicts that after 2025, U.S. electricity demand growth will increase from a historical rate of 0.5% to 2.5%. (During the expected period from 2015 to 2025, the compound annual growth rate of transmission and distribution capital spending of U.S. utility companies will reach 8.7%). 3. Utilities: High growth of 6-8%, comparable to "bond-like stocks" Supply-demand gap: From 2010 to 2020, U.S. electricity supply has almost experienced zero growth, but now AI + reshoring is driving industrial electricity demand above GDP growth rates, while an aging grid and insufficient new capacity (it takes 3 years to build a natural gas power plant, and turbine queues extend to 2030) are leading to supply shortages. Highlighted investment value: Regulated utilities companies (such as traditional electricity grid operators) have seen their growth rates jump from 2-4% to 6-8%, with current P/E ratios around 17 times, dividend yields of 3-4%, combined with 7% EPS growth, resulting in an annual total return of 10%, and a market beta of only 0.5, making them a model of "low volatility high return". (The average household electricity cost rises by 4% annually, currently approaching $18 per kilowatt-hour). Risk points: Policy pressure (e.g. consumer dissatisfaction with rising electricity prices may trigger regulatory intervention), management execution (60% of CEOs/CFOs have less than 4 years in their positions, leaving little room for error in large projects). 4. Nuclear Energy: Low technology correlation, strong long-term growth certainty AI + carbon neutrality dual catalyst: Data centers require stable clean energy, making nuclear energy the preferred choice; at the same time, under global carbon neutrality goals, the market size of small modular reactors (SMRs) is expected to reach $1 trillion by 2050, meeting about 1/4 of the current global electricity demand. Low correlation advantage: Among all "AI enablers", nuclear energy has the lowest correlation with the Nasdaq 100 (56%), making it a prime target for diversifying risks in the tech sector. Key targets: Bank of America is optimistic about NuScale (signed a 66GW SMR agreement with Tennessee Valley Authority), Oklo (vertically integrated SMR deployment, with 14GW project reserves), and BWXT (U.S. naval nuclear reactor supplier, received a $26 billion order). 5. Investment Recommendations: These ETFs are worth watching, balancing returns and risks For investors with different risk preferences, Bank of America has selected two core ETF categories that cover opportunities in "AI enablers" while managing risks: 1. Industrial and Infrastructure: High returns + low volatility AIRR (Mid-cap Industrial ETF): Focuses on mid-cap industrial stocks, with a 1-year return of 37.3%, 3-year return of 31.2%, a risk-adjusted return (Sortino ratio) of 1.35, a maximum drawdown of 27.9%, an "upward beta" to the Nasdaq of 0.78, and a "downward beta" of 0.68, showing greater resilience to market increases than decreases. PAVE (U.S. Infrastructure ETF): Invests in infrastructure construction, with a 1-year return of 26.8%, 3-year return of 23.4%, Sortino ratio of 1.05, maximum drawdown of 26.2%, suitable for investors preferring "stable growth". 2. Nuclear Energy: Low technology correlation, long-term optimal allocation URA (Uranium Mining ETF): With a 1-year return of 80.6%, 3-year return of 25.3%, Sortino ratio of 1.48, although a maximum drawdown of 37.8%, it has the lowest correlation with tech stocks, making it suitable for diversification. NLR (Nuclear Energy ETF): With a 1-year return of 71.5%, 3-year return of 32.3%, Sortino ratio of 1.58, holding nuclear energy operators and equipment providers, benefiting from SMR development. 6. Risk warnings: These three major pitfalls must not be overlooked AI capital expenditure normalization: If the AI-related expenditures of hyperscaler tech companies (such as Amazon, Microsoft) slow down, it will directly impact the demand for "AI enablers". Policy uncertainty: Federal or state governments may adjust energy policies (such as limiting natural gas, increasing renewable energy), or impose limits on utility company electricity prices and return on equity. High correlation risks: Apart from nuclear energy, most "AI enablers" have correlations of over 70% with tech stocks; if the Nasdaq falls, these sectors may also decline simultaneously. Summary The current macro environment (interest rate cuts + excess cash) provides fertile ground for "AI enablers", and the supply-demand gaps and policy dividends in sectors like energy, industrial, utilities, and nuclear energy make them "more certain opportunities than tech stocks". However, investors should avoid over-concentration in high-tech correlated assets, prioritize diversified risk through ETFs like AIRR, PAVE, URA, and be alert to the potential impacts of policy and capital expenditure fluctuations.