Data centers will consume 9% of US electricity by 2030

Over the past few years, dozens of experts and industry experts have made predictions that the ongoing Fourth Industrial Revolution will result in unprecedented increases in electricity demand in the United States and around the world. Last year, power sector consulting firm Grid Strategies released a report titled “The Era of Flat Power Demand is Over,” which found that U.S. grid planners – utilities and regional transmission operators (RTOs) – nearly doubled growth forecasts in their five-year demand forecasts. For the first time in decades, U.S. electricity demand is projected to grow by as much as 15% over the next decade, fueled by artificial intelligence (AI), clean energy and the cryptocurrency boom.

Artificial intelligence in particular is expected to be responsible for a significant increase in energy demand. According to the Electric Power Research Institute (EPRI), by the end of the decade, data centers will consume up to 9% of total electricity generated in the United States, up from ~1.5% today thanks to the rapid adoption of energy-intensive technologies such as generative artificial intelligence. For some perspective, last year, energy in the US industrial sector consumed 1.02 million GWh, which is 26% of US electricity consumption.

This prediction may seem bold, but it may be justified. After all, AI servers really do consume energy: Digiconomist estimates that a single NVIDIA DGX A100 server consumes as much electricity as several U.S. households combined. Early ChatGPT searches typically used 10 times more energy than Google Search, and that number will continue to grow. AI tasks typically require much more powerful hardware than traditional computing tasks. The global picture is even more optimistic for companies in the energy sector: according to Sreedhar Sistu, vice president of artificial intelligence at Schneider Electric, artificial intelligence represents 4.3 GW of global energy demand and could increase almost fivefold by 2028.

The surge in energy demand has a downside: According to the North American Electric Reliability Corporation (NERC), these megatrends are straining the U.S. energy supply, causing energy sources to struggle to keep pace. NERC forecasts that summer 2024 energy demand will reach its highest level since 2016, while winter demand will reach its highest level since at least 2015.

“The (Bulk Power System) is currently forecast to have the highest energy demand and growth rates since 2014, mainly due to electrification and forecasts of growth in the number of electric vehicles during this assessment period,“ NERC wrote. According to NERC, resource growth is “is becoming more and more challenging“as more fossil fuel generation sources are phased out,” adding that “m) by 2033, more than 83 GW of generators are planned to be retired, and more are expected. Generation plans must take into account growing energy needs and grid stability.

3 stocks to play in the AI ​​power boom

Fortunately, the boom in AI power also has a big advantage.

According to Goldman Sachs, the growing demand for electricity from AI data centers will create downstream investment opportunities that will benefit utilities, renewable energy generation and industrial sectors. GS forecasts that data center power demand will grow at a 15% compound annual growth rate (CAGR) from 2023 to 2030, with data centers consuming 8% of total U.S. electricity generation at the end of the forecast period. To meet the growing energy demand of U.S. data centers by 2030, approximately 47 GW of additional generating capacity will be needed.

“U.S. energy demand is likely to experience growth unlike any other in a generation. Since the turn of the century, U.S. electricity demand has not increased by 2.4% in eight years, with the average increase in annual U.S. energy production over the past 20 years being less than 0.5%.” predicted Goldman Sachs.

The surge in energy demand is expected to be met about 60% by gas and 40% by renewables, leading to approximately $50 billion in capital investments in U.S. generating capacity by 2030.

Meanwhile, Goldman Sachs-owned Wall Street firm UBS forecasts global AI revenues will reach $420 billion in 2027, a large 15-fold increase from $28 billion in 2022. GS also forecasts that infrastructure spending, powered by cloud GPUs and other emerging trends, will reach $195 billion in 2027 from $25.8 billion in 2022. The banker notes that only about 5% of companies currently use generative AI, “but we expect monetization to increase and it will account for most of the overall AI growth in the long term,” predicts Nadia Lovell, senior U.S. equity strategy specialist at UBS’s global wealth management division.

The most popular types to use in the AI ​​power boom are:

Beneficiaries of the increase in power demand:

Vertiv Holdings Limited

Market capitalization: $37.2 billion

Returns within 12 months: 415%

Vertiv Holdings Co. (NASDAQ:VRT), together with its subsidiaries, designs, manufactures and provides critical digital infrastructure technologies and lifecycle services for data centers, communications networks, and commercial and industrial environments. This Ohio-based manufacturer of power and cooling equipment for data centers has a strong presence in the market for thermal cooling and power management solutions.

Bank of America (BofA) recently touted VRT as a real winner in the AI ​​race, highlighting the company’s roughly 300% share outperformance Nvidia company(NASDAQ:NVDA) since the GPU maker released its first-quarter results on May 24, 2023. Since that day, VRT stock has increased 511%.

“Investments in artificial intelligence are not only about graphics processors, but also about power. GPUs require 2-2.5 times more power than CPUs, and the expected power consumption in US data centers under construction is more than 50% of the power currently used by US data centers,” Ohsung Kwon, equity and quantitative strategist at BofA Securities, said in a note on Monday.

Investment needs in the field of energy infrastructure:

Quanta Services Inc.

Market capitalization: $40.7 billion

Returns within 12 months: 55.1%

Quanta Services Inc. (NYSE:PWR) provides infrastructure solutions to electric and natural gas, renewable energy, communications, and pipeline and energy utilities in the United States and international markets. This specialist contractor is ready to benefit from the increased demand for electricity.

Three weeks ago, Qantas reported Q1 2024 revenues of $5.03 billion, up +13.5% YoY, while Q1 non-GAAP EPS was $1.41 was better than the Wall Street consensus by $0.12.

“For the first time in many years, utilities across the United States are experiencing and forecasting significant increases in energy demand resulting from the adoption of new technologies and related infrastructure, including artificial intelligence and data centers, as well as federal and state policies aimed at accelerating the transformation energetic“- the company said in its latest payment request.

Beneficiaries of the industrial supply chain:

Eaton company

Market capitalization: $133 billion

Returns within 12 months: 84.1%

Eaton company (NYSE:ETN), a global intelligent energy management company, is poised to capitalize on continued growth in energy demand. In its latest quarterly report, the company announced Q1 2024 EPS of $2.04, a record for Q1 and up 28% from Q1 2023, and revenue of $5.9 billion meant an increase of +7.7% y/y. Segment margins were 23.1%, a record for the first quarter and an improvement of 340 basis points compared to the first quarter of 2020. Eaton management raised full-year 2024 organic sales guidance, segment margin, earnings per share and adjusted earnings per action.

“Growth factors such as increased design activity related to megatrends, reindustrialization and infrastructure spending continue to drive demand for Eaton solutions in our markets, and we are confident that our teams will be able to meet increased targets for this year. We benefited from strong growth in our business at the beginning of the year, which resulted in strong order growth in the electrical and aerospace industries and record margins in the segment in the first quarter, “said Craig Arnold, president and CEO of Eaton.

Author: Alex Kimani for Oilprice.com

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