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Hello from New York, where we had one other chaotic political weekend. Former President Donald Trump was protected on Sunday after one other apparent assassination attempt. The election is 49 days away.
In today's edition, I'm covering the newest developments in artificial intelligence and the growing demand for electricity. You might remember Simon's recent article on the rise of virtual power plants and UK-based Octopus Energy. Today, I'm the businesses that may gain advantage from the power-hungry growth of AI.
ESG investments
Electricity suppliers are “the following derivative of AI”
As demand for artificial intelligence technologies continues to grow, a brand new class of firms is emerging to play a task on this sector: electric utilities.
“Investors are on the lookout for the following derivative of AI,” James West, senior analyst for sustainable technologies and energy at Evercore ISI, told me. “The technology investors who call us are asking about energy.”
“This is the following big bull market, especially as another AI derivatives like chips are running out of capability,” he added. Nvidia, the stock market darling of the AI phenomenon, saw its share price plunge after its last earnings report in late August. “It's difficult for Nvidia to proceed to grow its earnings as their capability is tightening,” West said.
If this modification were to occur, West said firms corresponding to GE Vernova, General Electric's power and renewable energy division that has been spun off into an independent company, or Fluence, a battery supplier that competes with Tesla, would have a great likelihood of success.
As data center energy demands increase, renewable energy development is advancing at a rapid pace, he said. According to the IEA, global renewable energy generation is predicted to surpass coal power for the primary time in 2025.
But that is probably not enough. Experts say there are two basic approaches to meeting AI's rapidly growing energy needs. One path is “recarbonization” – restarting or maintaining fossil-fueled power plants. That path carries a significant risk that AI and data centers will ultimately drive up carbon emissions. Microsoft's emissions increased 30 percent between 2020 and 2023, largely resulting from the info centers for its AI development systems, the corporate said in its sustainability report this yr.
AI data centers require “99.99 percent reliable electricity,” Thomas McAndrew, founder and CEO of Enchanted Rock, a Texas-based microgrid provider, told me. That demand puts additional strain on power grids and requires greater reliance on existing coal-fired power plants in addition to recent natural gas plants, he added. AI data center demand is causing higher residential electricity costs and better carbon emissions, McAndrew said. “The speed of power delivery is critical within the AI arms race.”
An alternative to “recarbonization”
But there’s a second way. If technology firms can fill in power gaps with natural gas microgrids and battery storage, then “AI data centers can reduce grid pressure and feed excess power back into the grid, supporting the expansion of wind and solar energy, thereby reducing costs and carbon emissions,” McAndrew said.
While natural gas is in no way a carbon-free fuel, it may well be used more efficiently to cut back emissions and fuel data centers, KR Sridhar, founder and chief executive of Bloom Energy, told me.
Bloom provides primary energy sources* for data centers and is one in all the important thing portfolio firms of Kleiner Perkins, the blue-chip enterprise capital firm that backs technology giants corresponding to Amazon and Google. San Jose-based Bloom can capture the warmth from natural gas energy and recycle it to power data center cooling systems, Sridhar said.
While Nvidia and other AI leaders could seem overvalued to some investors, there are other ways to ride the AI wave. Power infrastructure firms is probably not as flashy as Nvidia's semiconductors, but they may turn into an AI investment theme in 2025.
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