'No where near normal' but 30-40 oil tankers passing through the Strait 'is better than 0': Mulberry

Key Concepts

• Strait of Hormuz: A critical maritime chokepoint for global energy supplies.
• Energy Logistics: The flow of crude oil, LNG, and refined products via tanker traffic.
• Input Cost Inflation: The impact of fuel prices (diesel/jet fuel) on supply chain and corporate profitability.
• AI Tech Stack Chokepoints: The critical hardware dependencies for AI infrastructure, specifically high-bandwidth memory and power generation.
• Forward Sales/Valuation: Financial metrics used to assess the growth potential of tech hardware companies.

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1. Oil Market Dynamics and Geopolitics

Brian Mulberry, Chief Market Strategist at Zacks Investment Management, highlights that the stability of the oil market is currently tied to the volume of tanker traffic through the Strait of Hormuz.

• Traffic Recovery: While pre-conflict levels were 100–120 tankers per day, current traffic has recovered to 30–40 tankers per day. Although this is below capacity, it represents a significant improvement over the near-zero traffic seen in previous months.
• Product Diversity: The tankers currently transiting include crude oil, LNG, and refined products. This diversification is contributing to a slight cooling in natural gas prices.
• Infrastructure Repair: Facilities damaged earlier in the year, including Qatar’s LNG infrastructure, are expected to take 18–24 months for a full rebuild. Despite this timeline, the resumption of flow is viewed as a positive indicator for market health.

2. Economic Impact: Inflation and Profitability

Mulberry explains the direct correlation between energy costs and broader economic inflation:

• Diesel and Logistics: Diesel prices are a primary input cost for North American supply chain distribution. Sustained prices above $5 per gallon put significant pressure on corporate profit margins, as these costs are difficult to pass on to consumers indefinitely.
• Aviation: Similar pressures apply to jet fuel costs for airlines. A reduction in these fuel prices is viewed as a "positive narrative" that supports better profit margins and helps mitigate inflationary pressure.

3. Investment Strategy: The AI Tech Stack

Mulberry identifies two primary "chokepoints" in the AI infrastructure build-out: Memory and Power.

A. Memory (Micron, Western Digital, SanDisk)

• Technical Shift: New CPU designs now require 12 times more memory chips than previous iterations to facilitate data transfer.
• Market Position: Micron is highlighted as a top pick, trading at only five times forward sales despite spectacular earnings growth. Western Digital and SanDisk are also favored due to the massive backlog in high-bandwidth memory (DRAM) demand.
• Argument: Even with high-end GPUs (like those from Nvidia), AI systems are non-functional without sufficient memory to transfer data. This makes memory manufacturers essential to the AI supply chain.

B. Power (Caterpillar, GE Vernova)

• Energy Independence: Data centers are increasingly seeking to operate independently of the power grid.
• Application: Caterpillar is leveraging its expertise in generators to provide gas turbines powered by natural gas for data centers. This shift from diesel to gas turbines is meeting high demand, mirroring the order growth seen at companies like GE Vernova.

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4. Notable Quotes

• "Anything greater than zero is going to be good news for this market." — Regarding the resumption of tanker traffic through the Strait of Hormuz.
• "It doesn't matter how fast or how many Nvidia GPUs you have, if you don't have memory, you can't transfer the data from one place to another." — Explaining the critical nature of memory in the AI stack.

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Synthesis and Conclusion

The market is currently transitioning from a period of high geopolitical tension to one of operational recovery. The resumption of tanker traffic in the Strait of Hormuz is a critical indicator of long-term market health and is helping to alleviate inflationary pressures caused by high diesel and jet fuel costs. Simultaneously, the AI sector is experiencing a massive capital expenditure cycle. Investors are advised to look beyond the software layer of AI and focus on the physical "chokepoints"—specifically high-bandwidth memory and independent power generation—where companies like Micron and Caterpillar are seeing significant order growth and high profit margins.