Silver Demand Set to Outstrip Supply as AI Infrastructure Growth Accelerates
Silver's unique position as both a monetary metal and an industrial metal drives its demand. While gold has been used historically for money and as a raw material, silver is more critical to industry, with over half of its production going towards industrial use.
A structural shortage in silver supply exists, with cumulative deficits reaching 24,000 tons over the last six years, leaving the market vulnerable to volatility. Despite a 3% increase in mine production and a 2% decline in solar-cell output-induced demand decrease, overall demand for silver outpaced mine supply.
Technological advancements are expected to fuel higher demand for silver through 2030, with photovoltaic cells, electric vehicles, and artificial intelligence infrastructure driving growth. The Oxford Economics study found that as the world transitions towards electrification, renewable energy, and AI adoption, silver will play a pivotal role as a 'next generation metal.'
The planned growth of AI infrastructure spending is significant, with Amazon, Meta, Microsoft, and Alphabet announcing plans to increase their AI infrastructure spending from $410bn last year to $745bn this year alone. The US has the most data centres, with 2,056 existing sites, and an additional 4,000 planned or announced, including 809 under construction.
Silver is critical to AI and data centre-related infrastructure, used in compute hardware, power management, cooling infrastructure, and networking inside these sites. Outside, silver is essential for the power supply: electricity generation, transmission, and distribution. The International Energy Agency expects data-centre electricity demand to roughly double over the coming decade.
We believe that planned AI/data centre construction could result in record silver deficits due to limited mine supply increase. Silver mining companies have been undertaking mergers and acquisitions to acquire additional resources, but remain under-valued by long-only investors, trading at 1.26-times their net asset value on average.