Copper Is Rebounding. What’s the Best Way to Invest?

The massive investment into AI data centers cannot continue without copper. It provides miles and miles of wiring connecting these massive facilities, along with many other electrical components. A traditional data center requires between 5,000 and 15,000 tons of copper, according to the Copper Development Association. AI data centers can need up to 50,000 tons of copper per facility.

Yet after peaking at an all-time high of $6.68 per pound in May of this year, the price of the red metal fell slightly this summer as investor doubts crept in about the near-term profitability of AI investments. Copper’s price dropped to about $6.01 a pound by late June. The price has been rebounding strongly since then, however. As I write this, it’s back at $6.62 a pound and climbing.

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Copper prices have been surging, in fits and starts, since late 2023 due to growing demand from AI hyperscalers building data centers, coupled with supply that can’t keep pace. Mine development has been sluggish in recent years, and ore grades have declined. Electric vehicles, growing solar power, and electrification in poorer nations all add to global demand for copper.

Investors can gain exposure to copper’s rebound in several ways, including copper-focused funds, mining stocks, and futures-based strategies. Investors who believe the AI infrastructure build-out will continue (as I do) should consider gaining some exposure to rising copper prices. There are several good ways to do that.

Mining companies like Freeport-McMoRan (NYSE: FCX) and Southern Copper (NYSE: SCCO) operate copper mines around the globe, from Indonesia to Mexico and Peru, among other countries. Both stocks are up about 35% this year, more than twice the gain of the broader market.

Copper ETFs provide exposure to dozens of mining companies

For a more diversified approach, there’s the Global X Copper Miners ETF (NYSEMKT: COPX). It provides investors with access to a broad range of copper mining companies. The fund currently has net assets of about $7.3 billion. It holds around 40 different copper miner stocks (including Freeport-McMoRan and Southern Copper), with no one stock accounting for more than 6% of the fund. That ETF is up about 19% this year and 82% over the past year.

There’s also the United States Copper Index Fund (NYSEMKT: CPER), which doesn’t own mining stocks but rather has claims on the metal itself via futures contracts. It is a pure play on copper prices because it tracks the commodity and avoids the risks associated with particular miners.

That said, CPER is underperforming the miner ETF and may be more suitable for entities that need to hedge copper prices, rather than for those investing in AI and electrification trends. CPER has climbed about 15% this year but is up a robust 43% over the past 52 weeks.

Of all these options, I prefer COPX for its diversified holdings and superior performance.

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Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Copper Is Rebounding. What’s the Best Way to Invest? was originally published by The Motley Fool