Yves here. Many readers took interest in a recent post where, using a MIT Reader piece as a point of departure, we discussed the need to focus on survival, as in how to preserve what is worthwhile from our civilization, versus sustainability, which is a “business as usual” fantasy that with the right techno-tweaks like moar solar panels and use of electricity and at most an itty bit of hair-shirtery, we can prevent bad climate change outcomes.
This post indicates we need to lower our hopes even further. The idea that we are going to accelerate biosphere damage for the sake of AI and cryptocurrency says what passes for our civilization is not worth saving. But you can play the ponies in the meantime.
By Alex Kimani, a veteran finance writer, investor, engineer and researcher for Safehaven.com. Originally published at OilPrice
- Data centers are expected to consume up to 9% of US electricity by 2030, a surge in demand will require significant investment in power generation and infrastructure.
- This Fourth Industrial Revolution is a boon for companies in the power sector, renewable energy industry, and data center equipment providers.
- Goldman Sachs sees a $50 billion investment opportunity in U.S, power generation by 2030.
Over the past few years, dozens of pundits and industry experts have laid out prognostications that the ongoing Fourth Industrial Revolution will drive unprecedented electricity demand growth in the United States and globally. Last year, the power sector consulting firm Grid Strategies published a report titled “The Era of Flat Power Demand is Over,” which pointed out that United States grid planners—utilities and regional transmission operators (RTOs)—had nearly doubled growth projections in their five-year demand forecasts. For the first time in decades, demand for electricity in the U.S. is projected to grow by as much as 15% over the next decade driven by the Artificial Intelligence (AI), clean energy, and cryptocurrencies boom.
AI, in particular, is expected to drive a lot of that surge in power demand. According to the Electric Power Research Institute (EPRI), data centers will consume up to 9% of total electricity generated in the United States by the end of the decade, up from ~1.5% currently thanks to the rapid adoption of power-hungry technologies such as generative AI. For some perspective, last year, the U.S. industrial sector energy consumed 1.02 million GWh, good for 26% of U.S. electricity consumption.
That prediction might sound bold, but might be warranted. After all, AI servers are real power-guzzlers: Digiconomist estimates that a single NVIDIA DGX A100 server consumes as much electricity as several U.S. households combined. Early ChatGPT searches typically consumed 10x the amount of power used by Google search, with that figure set to rise. AI tasks typically demand much more powerful hardware than traditional computing tasks. The global picture is even more bullish for companies in the power sector: According to Sreedhar Sistu, vice president of artificial intelligence for Schneider Electric, excluding China, AI represents 4.3 GW of global power demand and could grow almost five-fold by 2028.
There’s a downside to explosive power demand growth: According to the North American Electric Reliability Corporation (NERC), these mega-trends are straining U.S. energy supplies leading to energy sources struggling to keep pace. NERC has projected that power demand in the summer of 2024 will hit its highest level since 2016 while winter demand will hit its highest level since at least 2015.
“The [Bulk Power System] is currently forecast to have its highest demand and energy growth rates since 2014, mainly driven by electrification and projections for growth in electric vehicles over this assessment period,” NERC wrote. According to NERC, resource growth is “becoming more challenging” as more and more fossil fuel generation sources are retired adding that “[m]ore than 83GW of generator retirements are planned through 2033, and more are expected. Generation plans need to consider growing energy needs and grid stability.’’
3 Stocks To Play The AI Power Boom
Thankfully, the AI power boom has a big upside, too.
According to Goldman Sachs, escalating electricity needs from running AI data centers will generate downstream investment opportunities that will benefit utilities, renewable energy generation, and industrial sectors. GS has forecast that data center power demand will grow at 15% compound annual growth rate (CAGR) from 2023-2030, with data centers consuming 8% of total U.S. electricity output at the end of the forecast period. Approximately 47 GW of additional power generation capacity will be required to meet the growth in U.S. data center power demand by 2030.
The “U.S. power demand (is) likely to experience growth not seen in a generation. Not since the start of the century has US electricity demand grown 2.4% over an eight-year period, with US annual power generation over the last 20 years averaging less than 0.5% growth,” Goldman Sachs projected.
The surge in power demand is anticipated to be met by approximately 60% gas and 40% renewable sources and drive ~$50 billion in capital investment in U.S. power generation capacity by 2030.
Meanwhile, Goldman Sachs’ Wall Street peer UBS has forecast that global AI revenue is on course to hit $420B in 2027, representing a large fifteen-fold increase from $28B in 2022. GS has also projected that infrastructure spending, driven by GPU cloud and other emerging trends, will hit $195B in 2027 from $25.8B in 2022. The banker notes that only about 5% of companies are currently using generative AI, “But we expect monetization to rise and account for a larger portion of overall AI growth over the longer term,” Nadia Lovell, senior U.S. equity strategist at UBS’s global wealth management division, has projected.
Top picks to play the AI power boom are:
Power Demand Growth Beneficiaries:
Vertiv Holdings Plc
Market Cap: $37.2B
12-Month Returns: 415%
Vertiv Holdings Co. (NASDAQ:VRT) together with its subsidiaries, designs, manufactures, and services critical digital infrastructure technologies and life cycle services for data centers, communication networks, and commercial and industrial environments. This Ohio-based manufacturer of power and cooling equipment for data centers has a solid market presence in thermal cooling and power management offerings.
Recently, Bank of America (BofA) touted VRT as the real winner in the AI race, highlighting the stock’s roughly ~300% outperformance of Nvidia Corp.’s (NASDAQ:NVDA) shares since the graphics processing units maker released its blowout Q1 results on May 24, 2023. VRT shares have rocketed 511% since that date.
“AI investment isn’t just about GPUs, but also power. GPUs need 2-2.5x more power than CPUs, and expected power usage for US data centers under construction is equivalent to more than 50% of the power currently used by US data centers,” Ohsung Kwon, equity & quant strategist at BofA Securities, said in a Monday note.
Power Infrastructure Investment Needs:
Quanta Services Inc.
Market Cap: $40.7B
12-Month Returns: 55.1%
Quanta Services Inc. (NYSE:PWR) provides infrastructure solutions for the electric and gas utility, renewable energy, communications, and pipeline and energy industries in the United States and international markets. This specialty contractor is poised to reap rewards from increased electricity demand.
Three weeks ago, Qantas reported Q1 2024 Revenue of $5.03B, good for +13.5% Y/Y while Q1 non-GAAP EPS of $1.41 beat the Wall Street consensus by $0.12.
“Utilities across the United States are experiencing and forecasting meaningful increases in power demand for the first time in many years, driven by the adoption of new technologies and related infrastructure, including artificial intelligence and data centers, as well as federal and state policies designed to accelerate the energy transition,’’ the company said in its latest earnings call.
Industrial Supply Chain Beneficiaries:
Eaton Corporation
Market Cap: $133B
12-Month Returns: 84.1%
Eaton Corporation (NYSE:ETN), a global intelligent power management company, is poised to capitalize on the sustained increase in power demand. In its latest quarterly report, the company announced Q1 2024 EPS of $2.04, a first-quarter record and up 28% over the first quarter of 2023 while revenue of $5.9B was good for +7.7% Y/Y growth. Segment margins were 23.1%, a first-quarter record and a 340-basis point improvement over the first quarter of 202. Eaton’s management raised full-year 2024 organic sales, segment margin, earnings per share, and adjusted earnings per share guidance.
“Growth drivers like increased project activity tied to megatrends, reindustrialization and infrastructure spending continue to drive demand for Eaton’s solutions across our markets, and we remain very confident in our teams’ ability to execute on our increased targets for the year. We capitalized on strong growth in our business to start the year, resulting in strong order growth in Electrical and Aerospace and first quarter record segment margins, ” Craig Arnold, Eaton’s chairman and CEO said.