As software goes from eating the world to destroying coding jobs and potentially rock star SAAS (software-as-a-service) companies, we are seeing the wider world waking-up to our corollary of the great thematic from Marc Andreessen. Software that is eating the world requires hardware, which in turn requires power, which in turn requires oil, natural gas, coal, copper, and critical minerals.
Oil, natural gas, coal, copper, and critical minerals underpin all aspects of modern economic life. Demand for these areas is only going up, has close to zero disruption risk, and has been broadly out of favor since the end of the 2004-2014 BRICs-driven “Super-Spike” era for commodities. In addition to being the raw materials embedded in AI infrastructure, rising geopolitical competition and the recognition that a country cannot outsource and offshore its way to long-term resilience and economic viability is turbocharging what would otherwise be a perfectly acceptable commodities recovery cycle.
In this week’s Super-Spiked we compare the macro outlook for coal, copper, and critical minerals with traditional energy sub-sectors through our preferred investment and corporate strategy lens of long-term profitability and hence investability; i.e., does a sector generate acceptable levels of long-term profitability to attract investors. A few high-level conclusions we find striking:
- COAL: Perhaps the sector that is most out of favor in terms of belief in long-term growth is coal, in particular in the United States where demand has been in structural decline since the emergence of shale gas two decades ago. To our surprise (and after making adjustments for the impact on invested capital for bankruptcy declarations by two companies), US coal companies enjoy competitive CROCI (cash return on gross capital invested) in comparison to the rest of the traditional energy, copper, and critical minerals sectors we analyzed. Global coal demand again made a new all-time high in 2025 in defiance of broad-based Excel spreadsheet forecasts for it to roll over. Our Power Surge! super-cycle call leads us to expect all forms of power generation (new and old) to grow over the next decade—coal will not be an exception.
- OIL REFINERS: Leading the way on CROCI are oil refiners, a sector that is receiving only slightly more love and respect than US coal. US oil refiners have begrudgingly gained a modicum of acceptance after a decade-plus of strong performance in particular versus other traditional energy sub-sectors like IOCs (international oil companies), E&Ps (exploration & production), and oil services. Still, oil refining is not brimming with investors that consider it a sexy-and-the-future-is-bright kind of sector, as the non-sensical fear of “peak oil demand” has been an overhang on confidence in long-term sustainability for the companies that critically transform crude oil into usable end products such as gasoline, diesel, and jet fuel. Just as macro observers and policy makers have come to appreciate China’s overwhelming advantage in metals and critical minerals processing and refining, we expect a growing respect to accrue to US oil refining—one of the manufacturing areas the United States has actually remained competitive with China and other regions.
- COPPER: In contrast to US coal and oil refining, we believe most observers would agree that the outlook for copper is bright in terms of future demand growth. We find it interesting that historic profitability trends look more like the traditional energy IOCs, E&Ps, and oil services, all of which trail oil refiners and over the past decade have also lagged coal. That said, the recent rally in copper prices bodes well for go-forward copper company CROCI.
- CRITICAL MINERALS: We do not include the eight US critical minerals companies we are tracking in the profitability graphs we show in this post because the numbers are meaningless for the sector at this time. The publicly-traded US-based companies in particular feel more like early-stage oil exploration companies that hold promise and excitement but have little by way of current operations. To be sure, this is an area we are less familiar with and in need of ramping up on.
To be clear, our broad view is constructive on all of these areas—traditional energy, coal, copper, and critical minerals. Individual company performance can vary greatly driven by strategy and exposure differences. Collectively, the combined equity market capitalization of all traditional energy sectors plus US coal plus US copper plus US critical minerals is less than the equity market capitalization of Nvidia, is about in-line with Apple and Alphabet, and only slightly greater than Microsoft and Amazon. In our view, significant investor flows will need to shift into these undervalued, under-appreciated but critically important areas if long-term supply of oil, natural gas, coal, copper, and critical minerals is going to keep pace with structural demand growth being driven by AI, broader digital transformation (our preferred term versus only emphasizing AI), and the new paradigm of geopolitical competition.
SAAS sell-off versus metals, minerals, and energy gains
SAAS company equities have come under pressure in 2026 as investors have started to dial-in business model disruption concerns due to AI. Whether the fears are overdone or not we leave to technology sector experts. Our observation is that as the world builds out infrastructure to support the application of AI by businesses and consumers, the providers of the raw building blocks for that infrastructure stand to gain.
The power sector super-cycle was identified several years ago. More recently, we are seeing power sector bullishness drive the shares of copper, critical minerals, and traditional energy companies that will support generation and grid expansions around the world. This post examines the investability of traditional energy, coal, copper, and critical minerals through our preferred lens of long-term profitability (CROCI).
Exhibit 1: SAAS disruption concerns vs “undisruptable” energy and metals sectors
Source: Bloomberg.
Profitability analysis supports investment flows into copper, coal, and traditional energy
We have analyzed profitability trends for eight traditional energy sub-sectors, coal, copper, and critical minerals by looking at CROCI (Exhibit 2) and reinvestment rates (Exhibit 3). We have divided the last 20 years into three distinct periods: (1) the 2005-2014 China/BRICs-driven “Super-Spike” era; (2) the 2015-2020 Super Bust period; and (3) the 2021-present period of recovery. The graphs for CROCI and reinvestment rates exclude US-based critical minerals companies, given the results were not meaningful owing to their small size and limited nature of current operations. Several conclusions jump out to us:
- For IOCs, E&Ps (oil, gas, Canada), and oil services, the pattern is familiar in that acceptable profitability was achieved during the Super-Spike era (12%+ CROCI), insufficient profitability was seen during the Super Bust (<8% CROCI), with recent profitability approaching or on par with the Super-Spike era despite lower commodity prices on average. With any semblance of a commodity price uptick (i.e., we are not at this time counting on a new commodity price super-cycle), profitability appears to be on-track to be meaningfully better than what was achieved during the Super-Spike era.
- While refiners show a similar pattern, the absolute level of CROCI is higher than the other traditional energy sub-sectors over all three eras. Notably, oil refiners generated excellent CROCI during the Super Bust period. In many respects, US oil refiners are now the “gold standard” on CROCI—something the IOCs used to be able to claim.
- Coal sector profitability (adjusted for bankruptcies) caught us by surprise in that it held up better than we realized during the Super Bust and is currently competitive with the other sectors during the recovery phase.
- Copper also surprised us in that the rebound during the recovery phase has lagged traditional energy and coal. That said, copper prices have been rallying ahead of crude oil, which bodes well for go-forward copper sector CROCI (Exhibit 4). We have shared general market enthusiasm for copper demand growth over the next decade. That said, our analysis of copper sector CROCI has helped us appreciate why investors are demanding the same type of capital discipline that has been expected of oil and gas sector companies.
- All of the different sectors analyzed are reinvesting well below 100% of cash flow from operations. Upstream oil and gas companies were most guilty of over-investing during the Super-Spike era, though both midstream and coal were also over 100%.
- Regarding write-offs and bankruptcies over the past decade or so (since the end of the prior super-cycle), we use CROCI in part to mute some of the impact relative to an ROCE (return on capital employed) calculation. We have also adjusted gross capital invested (i.e., the denominator of the CROCI metric) higher for the handful of companies across traditional energy and coal that declared and subsequently re-emerged from bankruptcy to offset the write-off benefit to go-forward profitability calculations.
Exhibit 2: CROCI analysis for traditional energy, coal, and copper
Source: FactSet, Veriten.
Exhibit 3: Reinvestment rates analysis for traditional energy, coal, and copper
Source: FactSet, Veriten.
Exhibit 4: Mind the gap: Copper versus crude oil
Source: Bloomberg, Veriten.
Equity market capitalization
Exhibit 5 shows the remarkable lack of meaningful equity market capitalization among traditional energy, coal, copper, and critical minerals companies relative to the MAG-5 behemoths. Even the IOCs—what are commonly referred to as Super Majors—are mere fractions of the tech giants; they are arguably simply “Majors” at this time, at least until any of them re-rate above the trillion dollar market capitalization hurdle. At the end of the day, fund flows alone do not make an investment case. However, structural demand growth that we think is undisruptable combined with competitive levels of profitability argue for the potential for these sectors to re-rate meaningfully higher.
Exhibit 5: Equity market capitalization of the MAG-5 versus energy, coal, copper, and critical minerals
Source: Bloomberg, Veriten.
Current valuations reflect a pessimistic view of the future for most raw materials sectors
Pedestrian EV/EBITDA valuations are a hallmark of analyzing traditional energy as investors routinely fear short-term commodity downside risk while underweighting long-term profitability improvements for at least some, if not many, companies (Exhibit 6). We see four drivers of higher valuations going forward:
- Structurally improved CROCI this decade versus the Super Bust period and the second half of the Super-Spike era;
- Structurally lower cash flow reinvestment rates;
- Improved balance sheet health;
- Rising demand for what these companies produce driven by global economic growth as well as the massive spend going into AI infrastructure and broader digital transformation at time of structurally lower reinvestment rates.
Exhibit 6: Pedestrian EV/EBITDA valuations at a time the outlook is bright
Source: FactSet, Veriten.
As a reminder, it is never ever a straight line up in any of these commodity businesses. It won’t be this time either. It’s what makes structural bull markets so much fun—all the doubt along the way.
Oil markets have been worrying about an over-hyped “oil glut” for nearly a year now. We see the U.S. incursion into Venezuela as the oil market equivalent of the Biden Administration and other G7 nations freezing Russia’s foreign exchange reserve holdings at the start of Russia’s war with Ukraine that sparked a massive rally in gold. We can’t take credit for the phrase, but “just-in-time” oil inventories appear to be shifting to “just-in-case” hoarding as most clearly demonstrated by China’s sizable and ongoing strategic petroleum reserve builds.
The United States ought to take a page out of China’s playbook and recognize that coal is an excellent source of domestic, baseload power generation. In the United States we are blessed not only with massive natural gas resources but also plentiful thermal coal. On its 4Q2025 earnings call, Peabody management noted that coal power plant utilization is 42% currently versus a historic high of 72%, and that running plants harder could add up to 10% to US power generation from 2024 levels—a remarkable statistic. We support producing both natural gas and coal with modern technologies that can reduce the impact of air pollutants and methane leakage.
The bull case for copper is better understood, though investors still do not seem to be in any mood to underwrite meaningful new CAPEX. How high will copper prices need to reach before companies get the green light?
Finally, the recognition that the U.S. cannot rely on China for rare earths is also increasingly well understood; how to address the issue is an entirely different matter, especially since the sector is small and speculative at this time.
⚡️ On a Personal Note: Undisruptable equity research analysts
My career start coincided with the creation of Lotus 1-2-3, an awesome pre-cursor to Excel that sadly could not withstand Microsoft’s eventual dominance. At my Petrie Parkman job interview in early 1992, I was asked to create a simple earnings model using Lotus 1-2-3 for a hypothetical company. I completed the task in about 5 minutes. When I walked into Paul Leibman’s office (my first boss and a tremendous mentor) to tell him I was done, I can still recall the incredulous look on his face on how I could have possibly finished the test so quickly. I got the job. As I approach the 34-year anniversary of my first day in the working world (March 31), what wowed an employer at the time now requires zero specialized knowledge. No one still includes on their resume “Excel expert.”
Twenty years after being hired at Petrie, my junior analysts at Goldman were adding macros to automate portions of my Excel models and engaging in spirited vlookup versus index-match debates (I think index-match was viewed as the better way to go). Today we are utilizing Claude and Perplexity to ramp up quickly on new sectors and to create or improve models we used to build manually. It is still imperative to understand the underlying modeling mechanics and to check the work. But similar to long division, AI machines can spit out the answer faster and better and prettier with some good prompting.
I for one do not live in fear that AI is going to eliminate Super-Spiked or my job at Veriten. Super-Spiked is limited only by my ability to provide content that both myself and our subscribers find interesting. I am excited to use AI as the latest technology tool that can help me research and provide perspectives on the broad energy, power, metals, and minerals sectors. It is also not going to eliminate the need for Veriten to have junior analyst support. Junior analysts will need to become fluent in “AI” just as my generation had to show we knew how to use Microsoft Office. Only the best will survive and thrive, but that has always been the case.
Equity research is not coding. The answer has never been in the spreadsheet—assumptions can always be tweaked to get radically different outcomes. We saw that in spades over the prior 4-5 years, as the world modeled energy “scenarios” that looked great in power point but had precisely net zero chance to come true in real life. Yet so many really believed those scenarios were possible. It is why we created Super-Spiked and un-retired to Veriten. The world will always need equity research analysts (buy-side, sell-side, consultant) that are unafraid to go against the grain and make the out-of-consensus calls supported by analytics. It is the greatest, undisruptable job in the world. I am blessed.