Gavin McCracken (Pt. 2): Robotics, AI, and A Commodities Supercycle

In this second conversation between Gavin McCracken and the host, they explore the intersection of AI research and commodity investing. McCracken recently attended an AI conference focused on mathematics and describes how AI systems are successfully disproving long-standing mathematical conjectures through computational search rather than intelligent reasoning. He argues that AI excels at finding counterexamples and exploiting gaps in systems, but cannot formulate new problems or demonstrate genuine creative intelligence.

McCracken presents a technology era framework comparing the Information Age (digital computing) to what he believes is the emerging Robotics/Analog Age. He argues that just as the Industrial Revolution peaked with nuclear fission, the Information Age is peaking with current AI scaling. The next era will involve using AI to design analog computers and robotics that solve specific problems with superior efficiency. This technological transition, he predicts, will drive a massive commodity supercycle as industries require vast quantities of raw materials to build physical robots and infrastructure.

The discussion covers specific commodity plays resulting from this thesis. Silver emerges as particularly important for robotics applications, with McCracken citing Tesla's stated goal of mass-producing humanoid robots—each requiring an ounce of silver. Tungsten is highlighted as critically undervalued given increased military demand from ongoing conflicts. Aluminum demand will surge for lightweight robot construction. McCracken also emphasizes that miners trading at low valuations relative to cash flow represent the best plays, as major mining companies cannot find ounces as cheaply through acquisition.

A significant portion of the conversation addresses oil markets and geopolitical risks. McCracken expresses conviction that Brent crude is inadequately priced given multiple tail risks: potential Trump export bans on WTI, escalating tanker attacks in the Strait of Hormuz (50+ confirmed hits by Ukrainian forces), the Panama Canal's capacity constraints, and broader Russia-Ukraine escalation. He notes a media blackout on tanker incidents despite their frequency and strategic importance. He argues that $200 oil would trigger a liquidity crisis but that the market is in denial about this risk.

McCracken shares his personal portfolio positioning, including large oil and Brent call positions financed through margin, acknowledging the strategy's volatility and risk. He describes a dramatic decision to liquidate equity positions and deploy capital into oil calls at the $68 level, which proved profitable as oil rebounded. He positions China as having effective control over oil prices through its ability to rapidly alter SPR buying, representing a geopolitical risk to Trump's second term if oil prices spike before midterms.

The conversation addresses why commodities represent better risk-adjusted opportunities than technology stocks, given that AI and semiconductor companies operate in highly competitive, commoditized spaces where everyone pursues similar strategies. By contrast, commodity exposure captures the structural demand from multiple drivers (AI infrastructure buildout, robotics revolution, geopolitical conflicts) without company-specific execution risk.

McCracken discusses why he reduced gold miner exposure despite reasonable fundamentals, arguing that a liquidity crisis triggered by $200 oil would cause gold to decline as people sell jewelry and assets for cash. However, he acknowledges ongoing currency debasement arguments for holding gold alongside the near-term technical overextension he observes.

Finally, both participants discuss the emerging opportunity in robotics companies and the challenge of identifying which will succeed. They note that unlike NVIDIA in 2022, most robotics-related stocks are not trading at cheap valuations, making the opportunity more challenging. They also express skepticism about Chinese robotics companies given geopolitical bifurcation and national security concerns. The conversation concludes with plans for a third discussion focused specifically on robotics as an investment theme.