The first industrial revolution was powered by coal and steam. The second was powered by electricity and oil.
Now we’re in the 5th industrial revolution and it’s powered by compute. I keep coming back to this idea that AI companies are buying as much compute as they can get their hands on. And like coal and oil, we’re about to see compute futures trade on the Chicago Mercantile Exchange
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The Big Picture
Anthropic and OpenAI both confirmed that “compute constraint” is the biggest challenge to winning the AI race. Anthropic signed the deal with SpaceX to use Colussus 1. OpenAI plans to spend $600 billion through 2030.
That means hyperscalers like Amazon.com, Inc. (NASDAQ: AMZN), Microsoft Corporation (NASDAQ: MSFT), Alphabet Inc. (NASDAQ: GOOGL), and SpaceX control what I would argue is the most important commodity for the future.
The reason semiconductor stocks are so hot is because AI needs chips and they can’t turn them out fast enough. It’s the law of supply and demand. High demand and low supply means prices go up.
Check out the iShares Semiconductor ETF (NASDAQ: SOXX) chart below:
Source StocksToTrade SOXX semiconductor index fund, 1yr-1d
What’s happening with compute is just an extension of that. Frontier AI companies can’t get enough compute. As more people start using AI, the need for compute is just gonna keep going up.
Step in the hyperscalers building new data centers. They rely on the chip manufacturers. But if the chip manufacturers can’t make ‘em fast enough, then compute costs go up, too.
Now, that means there’s uncertainty about the future cost of compute. Which means a startup that wants to build a datacenter or develop AI might be reluctant to do so.
How much is the compute capacity going to cost six months from now? What about 1- or 2-years from now? Will those prices support building the data center? What’s the time to profitability?
Enter the Chicago Mercantile Exchange and Silicon Data. Their partnership to sell compute futures means anyone building AI, from developers to data centers and cloud operators, can lock in long-term costs.
Compute is emerging as its own asset class, just like oil. In the energy industry, oil companies hedge by trading futures contracts. It gives them a better idea of forward looking revenue, so they know how much to invest in projects.
My Take
Compute futures will be great for the AI builders.
Now, it will change things for retail traders but probably not as much as you might think. Just like there are still low-priced oil plays, there will still be low-priced AI plays. There will be plenty of opportunities.
Watchlist
Antelope Enterprise Holdings Limited (NASDAQ: AEHL) was on my weekend watchlist. And it almost made the cut on my RCT series last week. But the RCT candle was one penny. I didn’t want to confuse anyone so I left it off. But here we are.
Source StocksToTrade AEHL 5d-5min, Oracle support and resistance, former RCT
I left the pink lines (the RCT) on the chart so you can see how tight it was. AEHL had a bunch of volatility halts that day.
Since then it’s done what so many penny stocks do. On day two, it squeezed in the afternoon before grinding sideways in after-hours. Premarket on day three was more sideways grind. Then it did a classic day three surge.
AEHL is a great example of why we care about the patterns and not the stock. The stocks change every day, but the patterns don’t. You could’ve traded AEHL any number of times based on the patterns.
On My Radar
- President Trump is in China with Elon, Jenson and more business leaders. It’s gonna be huge.
- More on compute futures
- Banks got tagged by Anthropic’s Mythos. That’s one way to sell your services.