Today countries are seeking greater control over the assets they view as essential to their future prosperity and security. This includes energy, semiconductors, critical minerals, artificial intelligence and defence capabilities. In many ways we’ve moved from a world focused on efficiency to a world focused on resilience. This restructuring is what we would call the sovereignty trade.
Over the last decade a series of shocks exposed vulnerabilities that many countries didn’t realise they had. COVID and the Trump trade war exposed dependence on global supply chains. Russia’s invasion of Ukraine exposed dependence on energy imports. Semiconductor shortages exposed dependence on a handful of manufacturers. And more recently, the race for artificial intelligence has exposed dependence on advanced chips, data centres and critical minerals. Governments suddenly realised that the most efficient supply chain isn’t necessarily the most resilient supply chain.
Countries are trading speed for safety
The world has become more uncertain. Supply chains have proven fragile and energy security can no longer be taken for granted. Access to semiconductors and critical technologies matters. So governments are becoming less focused on maximum efficiency and more focused on ensuring they can keep operating under more difficult, uncertain conditions. And once resilience becomes a priority, the conversation changes.
For decades economics drove geopolitics. Today, it’s the reverse. The economics of a country have to adapt to the uncertain geopolitical landscape. Resilience ultimately depends on capability. If you want energy security, then you need to build the power generation and transmission networks that deliver it.
If you want leadership in artificial intelligence then you need to build the data centres, semiconductor capacity and communications networks that make it possible. The same can be said for strategic independence having resilient supply chains means building manufacturing capacity onshore.
Infrastructure is where sovereignty becomes real
Infrastructure is the physical expression of resilience. And that’s why every road seems to lead back to infrastructure. One of the biggest misconceptions in markets today is that AI is primarily a software story. Jensen Huang, the CEO of Nvidia, sees it very differently. He talks about AI evolving from generative AI to agentic AI and ultimately to physical AI.
What is amazing is the amount of infrastructure required to make that happen. One strategist suggested AI-related infrastructure spending could eventually exceed a trillion dollars annually. That’s investment on a scale normally associated with nation-building. And increasingly governments view that infrastructure as strategically important.
More and more, governments are viewing AI infrastructure the same way they once viewed railways, ports or electricity grids. It’s not just technology infrastructure, it’s strategic infrastructure. Every major investment cycle starts with a problem society decides it has to solve. The railways connected communities; electricity powered economies; and the internet connected people. Today we’re building strategic capability to improve resilience.
A nation-building capital cycle
Countries want secure energy. They want secure communications and semiconductor capacity and secure supply chains. Solving those challenges requires lots of investment.
We are witnessing the beginning of a new capital cycle – a nation building capital cycle. Previous nation-building capital cycles were largely driven by efficiency. This one, in contrast, is increasingly being driven by sovereignty – the desire to ensure nations can continue operating when the world becomes less certain.
Historically, when nations wanted to build strategic capability, governments were typically the primary source of funding. Today the strategic imperative is just as strong, but many governments are carrying historically high debt burdens. They simply don’t have the fiscal flexibility they once had. Particularly is you overlay the cost of an ageing population. So we’re seeing a different model emerge.
The objective remains national but increasingly the capital and execution come from the private sector. That’s important for investors because it means many of the beneficiaries of the sovereignty trade won’t necessarily be governments. They’ll be the companies building the infrastructure.
SpaceX case study
In many ways, private capital is becoming a partner in the rebuilding of strategic capability.SpaceX is the sovereignty trade writ large. It’s private capital helping build infrastructure that will become strategically important to nations – launch capability; satellite communications; space-based intelligence; global connectivity; and national security.
If you go back twenty or thirty years, most people would have assumed these were government responsibilities. Today a private company is providing capabilities that governments, militaries, corporations and individuals increasingly depend upon. That’s a big shift. Historically governments built and owned strategic capability. Today they’re increasingly becoming customers of it.
Many people looked at the SpaceX valuation and asked how a rocket company could possibly be worth two trillion dollars. But the question isn’t whether SpaceX launches rockets. The question is whether SpaceX is building infrastructure. Investors are buying exposure to one of the most important infrastructure buildouts of our time.
If the nineteenth century was built on railways and the twentieth century was built on electricity and telecommunications, then the twenty-first century may be remembered for building strategic capability. And SpaceX may prove to be one of the defining companies of that era.
Future investment opportunities
The biggest investment opportunities of the next decade won’t come from predicting next quarter’s earnings. They’ll come from understanding the forces that are reshaping the world around us. Understanding who is building it, who is funding it and who ultimately benefits from it may be one of the most important investment questions of the decade.
