Electric infrastructure is the next game for AI investors

Greetings from New York, where we had another chaotic political holiday. Former US President Donald Trump is safe on Sunday after another assassination attempt emerged. The election is 49 days away.

In today’s edition, I am reporting on the latest developments in artificial intelligence and the increasing demand for electricity. You may remember Simon’s recent piece on the rise of renewable energy plants and UK-based Octopus Energy. Today, I’m looking at companies that can benefit from AI’s hungry growth.

ESG investing

Power providers are ‘AI-powered’

As the demand for artificial intelligence technology continues to grow, new companies are starting to emerge as a way to play the sector: electricity providers.

“Investors are looking for the next generation of AI,” James West, a senior analyst at Evercore ISI on sustainable energy technology, told me. “Technology investors calling us are asking for capacity.”

“This is the next big bull market, especially since you have some other AI things like chips that are going out of power,” he added. Nvidia, the stock market darling of the AI ​​phenomenon, saw its stock drop after its latest earnings report at the end of August. “It’s hard for Nvidia to continue to grow revenue because their capabilities are tightening,” West said.

If this change happens, West said companies poised to do well include GE Vernova, General Electric’s power and renewable energy units spun off into a private company, or Fluence, a rival battery provider. Tesla.

The energy demand of data centers is increasing, and the development of renewable energy is happening at a rapid pace, he said. Worldwide renewable electricity generation by 2025 is expected to surpass coal power for the first time, according to the IEA.

But that is not enough. There are two broad approaches to meeting AI’s urgent power needs, experts reckon. One way is “regeneration” – restarting or maintaining fossil fuel power plants. This track reveals the biggest threat that AI and data centers will ultimately raise carbon emissions. The release of Microsoft has increased by 30 percent between 2020 and 2023, thanks to data centers in the development of AI systems, the company said in its annual sustainability report this year.

AI data centers need “99.99 percent reliable power,” Thomas McAndrew, founder and chief executive of Enchanted Rock, a Texas-based microgrid provider, told me. This demand will strain power grids and require increased reliance on existing coal as well as new natural gas plants, he added. The need for AI data centers will lead to higher electricity costs for homes and carbon emissions, McAndrew said. “Speed ​​of power is critical in the AI ​​arms race.”

The ‘re-carbonisation’ alternative

But there is a second way. If technology companies can eliminate the power gap with natural gas microgrids and battery storage, then “AI data centers can reduce grid pressure and provide additional electricity back to the grid, supporting the expansion of wind and solar, thus reducing lowering costs and carbon emissions,” McAndrew said.

While it is a zero-carbon fuel, natural gas can be used efficiently to reduce emissions and fuel data centers, KR Sridhar, founder and CEO of Bloom Energy told me.

Bloom provides energy storage sources for data centers, and was one of the portfolio companies of Kleiner Perkins, the blue-chip venture capital firm that backs tech companies such as Amazon and Google. San Jose-based Bloom can take heat energy from natural gas and recycle that to power cooling systems in data centers, Sridhar said.

If Nvidia and other leaders in the AI ​​space are looking to some investors, there are other options to ride the AI ​​wave. Power infrastructure companies may not be as bright as Nvidia semiconductors, but they could be the subject of AI investment in 2025.

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