By Barbara Kollmeyer
Citrini Research digs deeper into the AI supply chain
Titanium has multiple uses as the economy goes digital.
The AI disruption onion continued to peel away on Wednesday as real-estate services companies became the next to get knocked.
Our call of the day from Citrini Research suggests investors stop tying themselves in knots trying to figure out &#34;what moats will endure in software.&#34;
In a new Substack post, they urge a simpler approach - &#34;what can't you prompt your way out of?&#34; The answer: an evolution of the &#34;atoms&#34; trade, stemming from supply chains pressured by both data-center buildouts and new sources of demand, such as beefed up government defense plans.
The macro and thematic equity research group was founded by investor and trend spotter James van Geelen, who identified AI as a game changer in 2022 and spotted diet drugs early in 2023.
The firm acknowledges the obvious &#34;stuff over digital&#34; trades already gobbled up by investors. Citrini views those - power generation equipment, grid infrastructure, copper miners and nuclear, etc. - largely &#34;priced for the perfection&#34; and facing impossible real-world constraints.
Citrini has turned its focus instead to advanced materials and processes that sell into sectors where it's bullish: defense, electrification, aerospace, artificial intelligence and space.
Take Solstice Advanced Materials (SOLS), which they flagged in their 26 Trades for 2026 report. A crucial middleman in the production of uranium used for nuclear fuel, it operates the only U.S. uranium hexafluoride conversion facility. The stock is up 54% this year, but they say it still has a ways to go, with management flagging backlogs.
Titanium is involved in two value chains, the first for defense, industrial and medical applications. The second sees around 90% of its ore volume used for titanium dioxide , crucial for construction, automotive and consumer applications.
To use as a metal, titanium ore has to be turned into a porous form called sponge - the U.S. imports over 95% of that. That's a complex process whose supply stems largely from Osaka Titanium Technologies (JP:5726) or Toho Titanium (JP:5727) of Japan.
Then there's the tiny and obscure tungsten, a crucial material for robotics, EVs, semis and defense. Its extreme density and ability to survive high heat makes it &#34;structurally essential in applications where nothing else survives.&#34; Rising geopolitical tensions have put tungsten in the spotlight, and one big U.S. play they like is Kennametal (KMT).
Also on Citrini's list of key materials are aluminum, carbon fiber, and electrical steel. The latter they describe as an &#34;unglamorous material that makes electrification possible,&#34; with two types of uses, one for EVs and another more vital for transformers. Posco Holdings (KR:005490) and Nippon Steel (JP:5401) are their picks.
Citrini also devotes space to the &#34;literal picks and shovels&#34;- companies that will benefit from the capex wave that's coming as in-demand mining companies will need to replace equipment and invest in exploration. Caterpillar (CAT) is a potential beneficiary, but they prefer Japan's Komatsu (JP:6301) , about half as expensive as CAT based on forward price-to-earnings estimates.
They also highlight the producers of raw materials and chemicals.
Potential beneficiaries are Asahi Kesei (JP:3407) , Sumitomo Chemical (JP:4005), but also U.S.-based Entegris (ENTG). Beyond AI, the electrical grid and aerospace sectors have their upstream constraints - with Arkema (FR:AKE) and Olin (OLN) flagged as contrarian after brutal cycles, but still attractive.
Citrini concludes: &#34;There should be a premium ascribed to the things that you cannot prompt your way out of. Especially when they're impacted by concentrated supply, multi-year qualification cycles, zero substitution paths, and demand being pulled forward simultaneously by defense budgets, electrification mandates, aerospace backlogs, and the AI infrastructure buildout.&#34;
The markets
U.S. stock futures (ES00) (YM00) (NQ00) are rising, with gold (GC00) and silver (SI00) pulling back.
The buzz
Cisco shares (CSCO) are dropping after the networking giant didn't quite meet Wall Street's high bar over AI orders.
CBRE (CBRE) will report results, a day after the real-estate services firm, along with Jones Lang LaSalle (JLL) and others, became the latest to get hit by worries over AI disruption.
Airbnb (ABNB), Coinbase (COIN) and Applied Materials (AMAT) report after the close.
Weekly jobless claims are due at 8:30 a.m., with existing-home sales for January due at 10 a.m.
Best of the web
The viral post on AI that everyone was talking about on Wednesday: Something big is happening.
9 years in college football? This Montana linebacker is the latest Division I student-athlete who's sticking around.
As prediction markets boom, the CFTC's flagship office has lost its last enforcement attorney.
The chart
This message from this chart of the dollar's relationship with equities from George Saravelos, Deutsche's global head of FX research, is the dollar doesn't always rally during risk aversion. His chart shows a rolling 12-month correlation between the U.S. dollar DXY and the S&amp;P 500 SPX, with the average notated by the red dotted line. That correlation has &#34;historically been closer to zero, and over the last year the dollar has once again de-correlated from the S&amp;P,&#34; he said. Saravelos drew the wrath of Treasury Sec. Scott Bessent last month when he said European investors could dump U.S. assets.
Top tickers
These were the top-searched tickers on MarketWatch as of 6 a.m.:
Random reads
&#34;It took a village to free a sea cow.&#34;
Desperately seeking Olympic plushies Milo and Tina.
Also at the Olympics, the Norwegian athlete who confessed infidelity after winning a medal. All was not forgiven.
BEYOND THE NEWSROOM
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-Barbara Kollmeyer
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02-12-26 0658ET

SOLS

Citrini Research emphasizes the importance of advanced materials in the AI supply chain, suggesting a shift from digital to physical assets. They highlight key materials like titanium, tungsten, and aluminum, which are essential for defense, electrification, and aerospace sectors. The firm identifies potential investment opportunities in companies like Solstice Advanced Materials and Kennametal, while also noting the need for mining equipment replacements. Citrini concludes that materials with concentrated supply and high demand should be prioritized, especially amid rising geopolitical tensions and infrastructure needs.

Dow Jones

ISHRS Aero & Def

The smartest AI trade right now is in molecules and powders, says the research firm known for nailing trends early