Early-year strength in energy and materials is highlighting a broader rotation toward sectors tied to AI infrastructure, power generation and raw materials, as investors reassess technology valuations ahead of earnings season.
BNN Bloomberg spoke with Brian Mulberry, senior client portfolio manager at Zachs Investment Management, about why capital is flowing into materials, energy, defence and utilities, while investors weigh profitability timelines for large AI investments.
Key Takeaways
- Energy and materials are up more than nine per cent year to date, supported by demand for copper, power generation and AI infrastructure buildouts.
- Capital expenditure from large technology firms is flowing to mining, utilities and industrial companies supplying data centres and grid expansion.
- Uranium and defence stocks are benefiting from expectations of increased nuclear power generation and durable government-backed spending.
- Investor scrutiny is rising around large AI-related capital spending, with questions about when profitability will materialize for major technology firms.
- Financial sector upside from IPOs and mergers depends on lower long-term bond yields, with meaningful deal activity likely only if the U.S. 10-year falls below four per cent.
Read the full transcript below:
ANDREW: Let’s get back to the broader market and earnings season. Our guest is focused on the energy and materials sectors, both of which have been climbing this year. As of this morning, they were up more than nine per cent year to date. Let’s get more from Brian Mulberry, senior client portfolio manager at Zachs Investment Management. Brian, always great to see you. Thank you very much indeed.
BRIAN: Thank you.
ANDREW: Just to clarify, are we talking U.S. or Canadian stocks here?
BRIAN: Mostly both, because really the raw materials are what’s at play here. Copper, as you were talking about before, is a major contributor to what we’re trying to do in growing the power that’s going to feed into AI data centres. What we’re finding is the capital expenditure spending from those very large technology companies is starting to land on the balance sheets of mining and materials companies, because we simply need more of that raw material to provide copper to wire data centres and grow the power grid across boundaries, if you will.
ANDREW: What would be your favourite way of playing copper? ETFs are a little hard to find in this space. There are moves to launch them, I know. Would you buy the likes of a Freeport-McMoRan, for example?
BRIAN: Right, exactly. Or even Albemarle or a Newmont, something along those lines that’s actually directly involved in the mining and processing. Obviously, the smelting and refining of copper is going to be a big part of this as well. I would like any of those names. Then, on the offset of that, in the same energy lane, looking at those utilities companies that are actually producing the electricity that runs on the copper — that’s a way to offset it as well.
ANDREW: What about uranium stocks? They’ve had a magnificent run.
BRIAN: Yeah, absolutely. I think the expectation globally is that there’s going to be more nuclear power generated. It’s just a process of getting those new power plants online, but they definitely need that raw material to make it happen. So yes, I think those mining stocks — even something like 3M that’s going to be directly involved in getting the material out of the ground — are great ways to play the spending that’s actually happening.
ANDREW: How are you handling the big defence stocks? Are you attracted to the likes of Lockheed Martin right now?
BRIAN: I am. Obviously, there’s growing defence spending, which is always good for their bottom line. They have some very durable government contracts. But at the same time, their expertise in a lot of this really intricate engineering that’s going to happen in the buildout of data centres makes them an applicable play in the AI spend as well. They’re starting to contribute to some of the design work in these very large construction projects happening in both countries.
ANDREW: It sounds like you’re watching investor wariness over some of these giant AI names. We saw a big correction in Oracle, for example, and the debt concerns — are you steering clear of some of these tech names?
BRIAN: I think the question is starting to be properly asked. With all of this spending that’s happening — approaching a trillion dollars in capital expenditure for AI infrastructure over the next couple of years — when does that come back to these technology companies, and will it be profitable? In the meantime, before we wait that out, we’ve simply followed the money. They’re spending real dollars on building AI infrastructure, so we go to the companies benefiting from that. That’s why we like some of these other sectors rather than continuing to own the same Magnificent Seven names, plus Oracle and Broadcom. There’s a way to follow the money they’re spending to grow the overall compute picture, which eventually comes back to them, but it might take another couple of years.
ANDREW: What about the big U.S. banks? There’s talk there could be a wave of mergers and acquisitions this year, perhaps in technology, and potentially a number of high-profile IPOs.
BRIAN: The investment banking side would be a really nice growth source. We saw trading volumes boost revenues at a lot of larger banks, with earnings up roughly 19 per cent year over year. That’s helping profitability. If that transitions into more investment banking activity, we’d be excited about financial services. In the meantime, we have a Fed meeting in the U.S. this week, with about a 97 per cent likelihood that nothing happens. That means the cost of capital remains static. To really get IPOs and M&A going, we need to see the cost of capital come down. As long as the 10-year U.S. Treasury is above about 4.2 per cent, it’s difficult to see those transactions accelerate.
ANDREW: Let’s put up a chart of the 10-year bond yield over the past five years. What’s the crucial level?
BRIAN: Under four per cent on the U.S. Treasury is the level where you’d start to see an acceleration in deal-making, both on the IPO and M&A sides. We’ve had six rate cuts over the last 18 months, but the 10-year has stayed sticky above four per cent, even reaching four and a half at one point. We need it lower by 25 to 30 basis points before you see a real pickup.
ANDREW: SpaceX could be a huge one. Presumably, this year could be one of the biggest ever. Do you think that’s an IPO you’d be interested in?
BRIAN: Yes. They’ve built a business with a clear revenue stream and a visible path to profitability. They have the most cost-efficient, repeatable process to get people and materials into space. That would be a very exciting name.
ANDREW: We’d better go. Thank you very much indeed.
BRIAN: Thank you.
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This BNN Bloomberg summary and transcript of the Jan. 26, 2026 interview with Brian Mulberry are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
