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 | | | | A Tariff Winner with Long-term AI Upside |
| Stocks have been volatile this week as the market wrestles with the impact of Trump’s tariff policies and how far he intends to take them.
Trump aims to energize and grow the U.S. economy—which is good for the market as a whole—but he also wants to reshape the economy.
A rising tide generally lifts all boats. However, there will be winners, and inevitably some losers, as Trump implements his industrial policy.
One of the top priorities of the new administration is to reinvigorate domestic industrial production. As Trump emphasized in his speech to the joint session of Congress on March 4, tariffs are the main tool in the toolbox.
Shares of one of our Inflation Protection Model Portfolio holdings have advanced approximately 8% since Trump’s speech—as this company is becoming increasingly seen as a beneficiary of Trump’s domestic production agenda.
This particular stock is also an indirect long-term AI play. As we explain in more detail below, now is a great moment to revisit the investment opportunity.
Tariffs are arguably the most controversial element of Trump’s economic agenda—and the part that markets have had the most trouble digesting.
Trump likes tariffs for a variety of reasons.
The U.S. consistently runs trade deficits with the rest of the world. Much of this has to do with the fact that the U.S. dollar functions as the world’s reserve currency.
There would, by definition, be no trade deficit if foreign countries returned all the U.S. dollars they received when Americans buy their goods and services and bought goods and services from Americans.
One of the main reasons foreign countries have a natural tendency to accumulate U.S. dollars is that they need them to conduct international trade.
That is what it means for the dollar to serve as the global reserve currency. It is the primary medium of exchange among nations.
The result of this hoarding is upward pressure on the U.S. dollar relative to foreign currencies, which makes American goods relatively less competitive in both domestic and international markets.
Stephen Miran, Trump’s nominee to Chair the Council of Economic Advisers, is especially focused on this dynamic. He has advocated for tariffs as a way of addressing this problem by putting U.S. goods on a more equal footing, while also generating revenue for the government.
Trade imbalances are exacerbated by high tariffs applied to U.S. goods by other countries. Other forms of commercial restrictions also make it difficult if not impossible for U.S. companies to access their markets.
Trump sees tariffs, or the threat of tariffs, as a way to pressure other countries to have more symmetrical trade policies. |
| | Whatever they tariff us, other countries, we will tariff them. That's reciprocal back and forth. Whatever they tax us, we will tax them. - Donald Trump (3/4/2025) |
| | There is also the problem of how trade deficits impact different parts of American society.
While financial professionals in New York may benefit from being able to buy low-cost foreign goods, blue collar workers in the interior of the country are deprived an opportunity to earn high wages.
The administration is clearly concerned with the impact that sustained trade deficits have on segments of American society that are more reliant on industrial activity, as opposed to knowledge work or services.
As Treasury Secretary Scott Bessent has indicated, the focus is increasingly shifting from Wall Street to Main Street. The administration is prepared for some market angst as its policies get implemented.
There is a certain irony to the fact that men like Trump and Bessent, who come from the highest rung of New York’s real estate and financial communities, advocate for policies that seem contrary to their economic interests.
But perhaps that is what leads to their acute sensitivity to how they and their peers have benefited from trade imbalances.
There are other non-economic (or at least not purely economic) reasons to apply tariffs.
Reliance on imports for manufactured items or commodities that are needed for military equipment, for example, can pose a genuine national security threat.
Why copper is strategic
Copper is one such commodity. In late February, Trump explained the need to protect domestic copper production through a Truth Social post. |
| | Like our Steel and Aluminum Industries, our Great American Copper Industry has been decimated by global actors attacking our domestic production. To build back our Copper Industry, I have requested my Secretary of Commerce and USTR to study Copper Imports, and end Unfair Trade putting Americans out of work. Tariffs will help build back our American Copper Industry, and strengthen our National Defense. American Industries depend on Copper, and it should be MADE IN AMERICA - No exemptions, no exceptions! America First creates American jobs, and protects our National Security. It’s time for Copper to “come home.” - Donald Trump (2/25/2025) |
| | Among industrial metals, copper is crucial because of its conductive properties.
Copper is the second most conductive metal on the planet behind silver, which is much scarcer and therefore prohibitively expensive for most applications.
For those who are curious, the scientific explanation is that both silver and copper have only one “valence electron,” which moves about with little resistance as electricity passes through.
Copper has a range of uses, including construction and piping, but has become essential for electrical applications. And as the world becomes increasingly electrified, more and more copper will be required.
AI and electrification
While advances in computing have led to a steady proliferation and expansion of electrically powered technologies for decades, artificial intelligence has the potential to supercharge this process.
Data centers alone are expected to become a major source of demand for copper in the future, potentially growing to 6% or 7% of the market over the next 25 years, versus less than 1% today, according to BHP, the world’s largest mining company.
But data center requirements for copper only represent the very tip of AI-related demand.
The real growth comes from all the future applications of AI, from self-driving cars to robotics to industrial automation, as more and more items will have electronic content.
There is also all of the electrical generation and transmission capacity that needs to be built to power data centers and all of the future AI use cases.
Copper Executive Order
On February 25, 2025, the White House issued an Executive Order “ADDRESSING THE THREAT TO NATIONAL SECURITY FROM IMPORTS OF COPPER.” The EO emphasized the critical role copper plays in industries that are essential to American economic and military security. |
| | Copper is a critical material essential to the national security, economic strength, and industrial resilience of the United States. Copper, scrap copper, and copper’s derivative products play a vital role in defense applications, infrastructure, and emerging technologies, including clean energy, electric vehicles, and advanced electronics. The United States faces significant vulnerabilities in the copper supply chain, with increasing reliance on foreign sources for mined, smelted, and refined copper. - Executive Order (2/25/2025) |
| | The document also highlighted, without naming China directly, the exceedingly powerful role that a “single foreign producer” now plays in the copper market.
China has more than 50% market share in global copper smelting. Smelting is an energy-intensive intermediate process involving extreme heat and chemical reactions.
Smelting is how copper ore mined from the ground becomes a useful product. The next and final step is refining, which gives copper the necessary purity for it be used in industrial applications.
The Executive Order initiates an investigation “under section 232 of the Trade Expansion Act to determine the effects on national security of imports of copper in all forms.”
The Bureau of Industry and Security (BIS), which falls under the Department of Commerce, now led by Howard Lutnick, will conduct an investigation into national security questions related to copper over a 270 day period.
Likely outcomes from this investigation include tariffs on foreign copper, export controls and new domestic production incentives. |
| Where we see opportunity
In March of 2024, we highlighted for 76report readers how a certain copper stock aligned with the long-term, AI-driven electrification trend.
This opportunity is now even more interesting.
Freeport-McMoRan (FCX) is by far the largest domestic producer of copper. There are some 28 copper mines in the United States. FCX owns 4 of the 5 largest (all of which are located in Arizona).
We encourage readers to revisit this note to become reacquainted with the company (click here).
Shares of FCX have advanced some 5% since the EO was announced and have gained further momentum after Trump’s speech to Congress. However, the shares are now at roughly the same level they traded a year ago.
Nothing has fundamentally changed to the core long-term investment thesis behind FCX, as articulated in our original note.
There will be long-term demand growth for copper, driven primarily by electrification trends.
Meanwhile, supply will struggle to keep up—because of the scarcity of copper resources around the world and the enormous investment and extremely long lead times required to build new mines (often more than a decade).
Tariff impact
Copper is a natural resource that happens to be primarily found outside the United States.
Countries like Chile, Peru, China and the Democratic Republic of the Congo account for the majority of the world’s copper. The United States represents only about 6% of global copper production.
FCX stands out as a copper miner because 43% of its copper reserves are held within the United States.
Tariffs and other policy changes have the potential to materially improve FCX profitability by creating a premium for domestically produced copper versus global prices.
In anticipation of tariffs, U.S. produced copper is now already trading at a premium that FCX management believes could lead to some $400 million annually in additional revenue. This represents some 6% of total company operating income in 2024.
Domestic copper premiums have the potential to expand even wider as policies become finalized. FCX may also benefit from tax incentives to expand production that could come out of the BIS investigation.
Following a pattern typical for commodity-related stocks, FCX performance largely tracks the trading prices of copper in global markets.
Although long-term demand for copper is heavily linked to electrification, copper prices have fluctuated over the past 12 months, largely because of short-term demand impacts related to Chinese construction. |
|  | FCX total return vs. Copper and Gold(last 12 months) |
| After reaching a peak last spring and surpassing $10,500 per ton in May, copper prices have retreated. Copper prices ended 2024 towards their lowest levels of the year (around $8,700 per ton) but have since improved towards the $9,500 level.
For much of 2024, FCX shares outperformed copper, but since the start of 2025, they have underperformed, even taking into account the recent bump related to the Executive Order.
The stock’s recent underperformance versus the commodity price signals a more attractive valuation relative to the company’s copper production and reserves.
There is gold as well!
The company is primarily a copper play, but FCX does own one of the largest gold mines in the world in Indonesia.
The company expects to sell 1.6 million ounces of gold in 2025, which makes a material contribution to overall financial results.
FCX estimates that every $100 per ounce increase in the gold price translates into an approximately 1.5% increase in cash flow.
Because of the strength of gold over the past year, current gold prices are already almost $600 per ounce higher than the average price that FCX realized in its gold sales in 2024.
Further improvements in the price of gold will continue to benefit the company’s financial performance, which makes FCX something of a long-term gold play as well.
The AI opportunity
Commodity stocks are inherently volatile, which requires some additional investor patience.
But over time, secular drivers tend to dictate performance as opposed to short-term cyclical fluctuations. FCX’s CEO Kathleen Quirk made this point at a recent investor conference. |
| | You saw some announcements today from Apple about the billions of dollars – hundreds of billions of dollars that are going into AI infrastructure and technology, that requires lot of power, lot of energy infrastructure and very significant amounts of copper in all of those data centers…. And we see the opportunity here for copper to have a secular lift. People talk about concerns about the cyclicality of copper, but having this foundational secular lift in demand coming from power generation, new power generation investments, multibillion dollar investments in infrastructure and energy infrastructure, it's going to be very positive for copper. And at the same time, it's become more and more difficult to develop new supplies of copper. - Kathleen Quirk, Freeport-McMoRan CEO (2/24/2025) |
| | Technological innovation also favors FCX in another way. The benefit from this is down the road but, according to the company, recent innovations allow FCX to derive value from copper stockpiles that were previously regarded as waste.
Through advanced drilling and digital sampling techniques, copper contained within these stockpiles may become economically feasible to access.
According to Quirk, FCX has some “40 billion pounds of copper in stockpiles already, already been mined, sitting there and previously we thought it was all waste.”
She believes FCX has a unique ability to leverage technology to make use of this resource, which represents “an enormous opportunity for value creation at Freeport.”
Given long-term supply and demand dynamics, copper is an inherently interesting commodity for investors. Meanwhile, geopolitical realities highly favor assets and operations contained within American borders.
Considering its highly attractive footprint within the continental United States, we see FCX as a compelling and differentiated way for investors to add long-term copper exposure to their portfolios. |
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