AI versus Commodity Capital Expenditure

Much is being made of the investment in Artificial Intelligence (AI). In fact, global spending on artificial intelligence is projected to reach US$2.52 trillion in 2026, according to a forecast by Gartner. This represents a 44% increase from 2025, reflecting a significant growth trajectory in AI investments. 

This expenditure should underpin the ‘tech bubble’ for a little longer but the Capex cycle for the ‘old economy’ has been depressed.  

Analysts have consistently forecast falling commodity prices for years (gold & copper aside over the last 24 months) and this negativity bred a reluctance within the sector to invest in future capacity. Take oil, demand was set to fall because of the uptake in EV’s.

It is a typical boom/bust cycle occurrence but reality is usually different and forecasts have changed over the last 5 years.

Clearly oil demand hasn’t waned like the ‘experts’ thought.

And why, when everyone tells you demand is on the decline, would you invest in future capacity. This underinvestment creates room for the next boom as demand catches and then exceeds supply.

And this is the trend we’ve seen throughout the commodity sector. So while capital expenditure (and the flow of investment dollars) in AI booms, commodities have been left behind.

So while the commodities sector has boomed over the last few months, as investors have realised that prices need to increase (and thus valuations) the reality remains that this has a little further to run while miners invest in future production. Shell, for example, will spend $12-14bn this year to increase production 1%.

To see meaningful change in the supply of commodities we need serious cash investment and time.

The Curious Case of 360

Life360 (360) was a “market darling” in 2025 rising from $7 to a peak of $56 in October 2025 and it has been a topic of much discussion within Zinc.

The subsequent fall from that lofty peak of $56 (currently 46%) has been savage but it would be remiss of your write to overlook the fall has been sector-wide (we wrote about REA 2 weeks ago as another example).

What makes this curious is that 360 issued a trading report last Friday (23 January) which included the following:

This was a significant upgrade and the market responded accordingly with 360 up as much as 30% on the day.

This all coincides with the reality of 360 moving from loss making “tech idea” to “profit making company” and this is where the rubber-meets-the-road or more aptly does profit meet valuation?

360 is still ‘expensive’ at 71x earnings but it does possess a strong growth pathway and the other key statement in their update was new users which also hit a new record in the half year (up 576,000 in the fourth quarter). This was, according to analysts, surprising growth and 360 expects to repeat this which, if achieved, supports the growth forecasts.

Fast forward to Tuesday and 360 dropped almost 9%. The market, seemingly, moving straight back to the “software stocks are overvalued” theme.

Similar to 360 is Xero (XRO), Australia’s favourite bookkeeping software. It too has swung from loss-making growth stock to profit making software company and it too is feeling the weight of valuation versus profit growth reality.

XRO is also trading around 70x earnings and at its November report its earnings per share (EPS) missed by 13%. It has suffered ever since.

The share market is all about expectations and reality and the hardest moment to forecast is the pivot from loss-maker to growing profit-maker.

Both are good companies and both will be good buys but only when the market decides valuation matches (or more likely is below) profit expectations.