Experienced investors know that the clean/renewables energy industry has a long-standing reputation for political sensitivity. Said another way, there are widespread perceptions that a Democrat president is beneficial to renewable energy equities, while a Republican president can bring headwinds.
That’s not always the case. Just look at the ALPS Clean Energy ETF (ACES). On the back of an impressive 12.11% surge for the month ending July 24, the ALPS ETF is flirting with a 10% year-to-date gain. All that while President Trump has made it clear he’s not a fan of renewables.
Investors are right to be apprehensive regarding Trump’s views on renewable energy. Then again, fighting the tape with ACES and related ETFs may be a fool’s errand going forward. That’s because the renewable energy space is catalyst-rich, with some of the sparks derived from the artificial intelligence (AI) boom.
ACES Has Value
Fortifying the case for a longer ACES resurgence is the dual value proposition offered by renewable energy. First, it’s an increasingly cost-effective power source, which is a source of allure for end users such as cryptocurrency miners and companies building AI data centers. Second, some market observers see value in clean energy equities.
“Renewables are cheap. Lazard recently found that solar and wind energy projects are more competitive than fossil fuels, even without subsidies,” noted Leslie Norton of Morningstar. “After a bear market, renewables-related companies are cheap too.”
As a derivative play on AI, ACES could merit closer examination. That’s because AI is in its early innings, and its purveyors are displaying willingness to lean into renewables. Morningstar analysts Brett Castelli and Tancrede Fulop estimate data center demand will surge in the years ahead, contributing to soaring AI-related power consumption.
“The forecast is partly based on Nvidia’s NVDA projected data center revenue and corresponding chip shipments. The analysts write that about 60% of additional demand will be met by natural gas. About 25% will be from renewable energy additions,” added Norton.
Among the individual renewable energy stocks Morningstar sees benefiting over the long, Brookfield Renewable (BEP), First Solar (FSLR) and Vestas Wind Systems (VWS) were mentioned. Brookfield Renewable and First Solar combine for nearly 10% of the ACES portfolio.
As the fourth-largest holding in ACES, Brookfield features a solid mix of renewable energy assets and a robust growth trajectory.
“’Brookfield holds a well-diversified global portfolio of clean energy technologies assets. The company targets 10% annual growth in funds from operations through a combination of organic growth and mergers and acquisitions. The current market volatility provides opportunities for Brookfield to find attractive deals,” according to Morningstar.
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