Jefferies sees bottlenecks in critical minerals as electrification demand builds

Investing.com -- In a note Wednesday, Jefferies initiated coverage of several companies tied to advanced materials and energy-efficiency solutions, arguing that electrification, AI and rising defense and space investment are creating durable demand, but also a series of supply bottlenecks across critical minerals.

Analyst Laurence Alexander named Element Solutions and Almonty Industries as top picks, both rated Buy.

IperionX and Materion were also given Buy ratings, while NioCorp Developments, Fireweed Metals Corp and Standard Lithium were assigned a Hold rating.

The firm’s thesis is that AI has spilled over into new demand for energy and accelerating automation as robots become more competitive with human labor, with the firm focusing on companies leveraging material science to improve efficiency across energy generation, storage, electronics and mobility.

The bank flagged two scale problems, with the first being the sheer size of the transition, with energy investment requirements estimated at $65 trillion to $250 trillion depending on policy. The second is friction from a failure to coordinate investments.

As a result, Jefferies expects "spasmodic bottlenecks," predicting fly-ups in rare earth processing in 2028-32, lithium conversion in 2027-30, nuclear enrichment in 2035-40, and grid transformers in 2034-42.

“Each one is a key constraint, despite being relatively small compared to the broader transition scenario: ~$2trn for nuclear enrichment, ~$0.5trn for lithium, and ~$0.3trn for rare earths,” wrote Alexander.

Those pressures are inspiring innovation in new processes and materials, the firm said, with end-markets such as healthcare, aerospace, defense and electronics rewarding chemical innovators with higher margins and returns.

Jefferies recommended favoring companies with improving returns on invested capital and margins, a strategy it said has generated a compound annual return above 15% since 1999.

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