TLDR:
AI companies are consuming massive amounts of electricity, leading to potential opportunities in utility stocks. As AI continues to grow, utilities will need to invest in infrastructure to meet the demand, offering potential for growth in the sector. Companies across Big Tech’s energy pipeline, including midstream companies, data-center companies, and electrical equipment providers, could benefit from the AI boom. While there are risks involved, the demand for energy across various industries, including electric vehicles and manufacturing, is also on the rise.
Key Elements:
AI companies consuming large amounts of electricity
Potential opportunities in utility stocks due to infrastructure investment needs
Ever since uttering the letters “GPT” became enough to summon a salivating venture capitalist, tech giants have been gobbling up electricity at the scale of small countries, consuming ever-greater power supplies to fuel the AI future. To satiate that hunger, they’re getting increasingly creative: Microsoft signed a power purchase agreement with a nuclear fusion startup in May 2023; Amazon bought a nuclear-powered data center in March; and Meta announced a nearly $40 billion plan for digital infrastructure investment earlier this year. AI is the new gold, but you can’t mine it without energy. And that could offer an edge to retail investors eager to buy into the trend. Many investors are now leery of the high share valuations of AI-focused stocks like Nvidia or the so-called hyperscalers—the large cloud-services providers like Amazon, Microsoft, and Google that manage the computing power used by AI models. But companies across Big Tech’s energy pipeline could turn out to be more attractive buys.
To accommodate the boom in data center power demand driven by AI, most utilities are going to have to invest considerably in infrastructure, from energy storage to grid expansion, at a time when many are already coping with overexerted grids. Some have imposed new rules to adapt to the demands of new technologies. Many Bitcoin miners, for example, have adopted a practice called curtailment, where they turn off mining during peak times. As Dan Thompson, a principal analyst at S&P Global, explains, data centers don’t have the same luxury, especially when it comes to inference demands. “This is very real-time, and it can’t be curtailed,” he says. And the demand is just going to grow as data centers replace rows of older chips with AI-focused GPUs: “It’s what has everybody concerned, excited, interested—whatever word you want to use.”