An investment idea from Morgan Stanley analyst Andrew Percoco is among the most interesting I’ve seen this year. I will start, however, with the reminder that the word interesting where trade ideas are concerned does not necessarily translate into future profits. Mr. Percoco’s idea concerns the expected explosion in artificial intelligence-related data centre construction and the need to power them.

Morgan Stanley estimates that the proliferation of artificial intelligence (AI) technology will result in global data centre electrical power requirements growing by 407 terawatt hours per year before the end of 2027. For point of comparison, Canada as a whole produced 628 terawatt hours of electricity in 2021.

In terms of upside for a stock, Mr. Percoco believes Bloom Energy Corp. (BE-N), a company producing solid oxide fuel cells for local power generation, will be the biggest beneficiary of the trend. Major providers of AI functionality are in a hurry to build data centres for market share reasons, and the analyst predicts Bloom Energy will fill the gap for existing power grids that will be unable to expand quickly enough.

Bloom Energy’s fuel cells can be up and running in less than two months and offer more benefits than quick connectivity. Fuel cells provide cost-effective power around the clock and can use a variety of fuels including hydrogen, biogas and natural gas. Electricity is produced through a chemical process, not combustion, which limits greenhouse gas emissions.

Bloom Energy currently trades just below US$10, has minimal earnings, and is extraordinarily volatile. Mr. Percoco has a US$22 price target on the stock. His optimistic profit growth expectations are founded on assumptions that exposure to the AI-generated ramp up in electricity demand will see Bloom’s current 300 megawatt annual power generation increase by multiples in the years ahead.

Mr. Percoco’s investment case for Bloom Energy is thorough and compelling, at least on first read. The stock is, on the other hand, down 68 per cent since August 2022 and that kind of volatility is not for the risk-averse. At the very least, this is a company worth watching.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

Why this year in particular investors should sell in May and go away

Investing Professor Dr. George Athanassakos says his crystal ball is signalling that portfolio managers will be heavy sellers of equities in May, in line with the adage “sell in May and go away.” He thinks you should probably be too.

Has Wall Street peaked too early this year?

History suggests Wall Street’s recent 5 per cent mini-correction won’t be its last this year, points out Reuters columnist Jamie McGeever. He says stocks face potentially higher earnings and interest rate hurdles in the second half of the year if investors’ bullish expectations are to be met.

It’s time for tax-burdened Canadians to look beyond domestic stocks and bonds. These ETFs are a good place to start

Tom Czitron, a veteran fund manager in Canada, thinks the tax burden in this country has become unreasonable and will eventually hurt investment returns. He says Canadian investors should maximize their foreign exposure and consider having minimal exposure to Canada – or none at all.

U.K. stocks may finally be back in fashion

London’s FTSE-100 hit a record high this week, raising hopes that Britain’s stock market might finally be shaking off years of underperformance as investors look for bargains and U.K. growth picks up.

Fund offering ‘venture capital’ exposure sends investors on meme-like ride

A new fund that allows shareholders access to privately owned technology companies has sent investors on a wild ride in recent weeks while eliciting criticism from the likes of Morningstar and competitor ARK Investment Management. As Reuters reports, shares of Destiny Tech100 (DXYZ-N) are up some 200 per cent since its March 27 launch.

Scotiabank’s chief economist on where rates, the economy and housing prices are heading

Globe and Mail investment reporter and equities analyst Jennifer Dowty speaks with Scotiabank’s chief economist Jean-François Perrault for insight on economic growth, perspectives on monetary policy, as well as the housing market. He thinks a June rate cut by the Bank of Canada “seems unrealistic.”

Others (for subscribers)

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Globe Advisor

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