Investing for Security in Unstable Times: Energy and Supply Chains

Efforts to secure supply chains and energy sources are creating powerful and enduring themes for equity investors—even in these turbulent times.

Investors are digesting a barrage of US policy decisions and global technology news that has fueled market volatility. Despite the uncertainties, we think some broad trends will ultimately transcend the market noise and offer attractive opportunities for equity investors with a long-term mindset.

Two major forces have unsettled markets in early 2025. Chinese company DeepSeek unveiled a generative artificial intelligence (AI) model that may have been developed at a fraction of the cost of existing models, raising questions about future AI-related spending. Meanwhile, President Trump’s plans to impose significant tariffs on major trading partners has triggered extraordinary instability, with the Federal Reserve’s Economic Policy Uncertainty Index for trade jumping to a near record high (Display).

When dramatic news upends markets, investors may lose confidence in strategic investments. Yet moments like these also create fertile ground for active investors to stay focused on the businesses best positioned to benefit from durable trends.

AI and Energy Security: Myths and Facts

The energy transition is a good example. DeepSeek’s breakthrough has raised questions about the future trajectory of investment in the transition to a more robust domestic power system and US energy security. What’s the connection? Perhaps, some argue, lower development costs of energy-intensive AI technology might reduce the investment needed to improve and upgrade US energy infrastructure below previous forecasts.

We think that conclusion misses the mark, because most of the projected rise in energy and power infrastructure investment has nothing to do with AI. In fact, energy investment is primarily being driven by the need to modernize an aging US power grid and to ensure that generation capacity can support more US manufacturing and consumer demand. And rising demand for US power requires secure energy sources.

US power demand is projected to grow by about 2.5% a year through 2030, according to Goldman Sachs’s estimates (Display), with AI accounting for about a fifth of total growth. As we see it, this implies that even if AI growth falls short of expectations, power demand will still probably grow by at least 2% a year. So continued investment in upgrading US energy infrastructure and securing supply is still vital. If AI spending exceeds expectations, it will make a strong case for energy security even more compelling, in our view.

What type of businesses could benefit? We believe companies that manufacture equipment or infrastructure for electrification should continue to enjoy solid growth as the quest for energy security plays out. Similarly, equipment makers for industries like natural gas and nuclear energy, which are essential for meeting higher demand, should also see steady gains.

Tariffs and Trade Wars Buoy Supply Chain Investment

President Trump has been pressing ahead with plans to impose tariffs on Canada, Mexico and China, as well as a wider set of trading partners. The situation is fluid, but the brewing trade war has compounded concerns about the broader industrial economy and levels of capital investment needed to restore US infrastructure.

While the anxiety is understandable, we think the trade war will actually add another catalyst for US companies to secure supply chains, which in turn, will likely bolster infrastructure investment. For many companies, this is already happening. Since the COVID-19 pandemic disrupted global supply chains, companies have been reconfiguring supply chains to reduce the risk of painful production bottlenecks. Concerns about US-China trade tensions have already led many US companies that depended on Chinese suppliers to find alternate sources of supply elsewhere.

Massive spending to secure supply chains is taking place in areas tied to US national security and economic priorities, such as in the semiconductor industry. If anything, the latest round of tariffs has incentivized companies to invest even more to reduce supply chain risk.

Decaying US infrastructure is an obstacle to this process. For years, chronic underinvestment in US ports, airports, roads and power has been a festering problem, which must be addressed in any strategic policy agenda aimed at revitalizing American manufacturing and securing supply chains. Yet in January, Trump sought to eliminate or cut certain components of the Infrastructure Investment and Jobs Act of 2021. In our view, infrastructure investment remains an area of rare bipartisan agreement. So after the dust settles, we expect spending on key initiatives to resume, given the urgency.

Despite near-term policy concerns, recent earning trends indicate that some industries are poised to benefit from the push to secure supply chains. Semiconductor equipment is showing signs of recovery even as sales to China slow, based on revenue from Lam Research, one of the industry’s leaders (Display). Logistics in general—and trucking in particular—are stabilizing following a steep decline from pandemic-driven peaks. Spending on cybersecurity continues to power ahead through the turbulence we have seen in the other parts of the economy.

For equity investors, security-oriented themes offer a path to capturing attractive sources of long-term returns in an uncertain environment.

Start by identifying industries that are well positioned to capitalize on US efforts to achieve energy independence and supply chain security. Then, use fundamental research to find companies that are exposed to the themes with shares that trade at a discount because of the uncertainty.

To be sure, investors must be attuned to the rapidly changing policy risks. But with a thematic approach to energy and supply chain security, and an emphasis on quality businesses with competitive advantages, we think investors can create an equity portfolio that is positioned to surmount market volatility and to capture resilient sources of long-term return potential.