Advanced chips aren’t the only bottleneck in today’s AI boom…
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| Keep reading below to know more! Advanced chips aren’t the only bottleneck in today’s AI boom… The AI build-out is straining America’s power grid. This is because data centers need far more electricity to continue operating. BloombergNEF estimates U.S. data center electricity demand to surge 194 gigawatts by 2035. At that level, data centers would consume about 20% of all U.S. electricity. (For reference, they use just around 6% today.) The size of individual projects is also rising fast as a result. ChatGPT creator OpenAI plans to spend more than USD 30 billion on a data center complex in the state of Georgia. The new site will need about 3.2 gigawatts of power. For the past few years, AI companies have spent heavily on chips and servers. Power is now becoming just as important. That’s why in today’s “The Independent Investor,” we will explain why electricity access is limiting AI growth, and why companies that can bring power online faster are set to benefit from this demand.
AI’s Electricity Problem The U.S. power grid wasn't built to handle today’s AI-driven electricity demand. PJM Interconnection provides a glimpse into this problem. This regional transmission organization manages the electric grid across 13 states and Washington, D.C., serving about 67 million people total. Now, it's struggling to add enough new electricity to meet future needs. Every year, PJM holds a capacity auction where power companies bid to provide electricity. Said simply, these companies promise to have their power available for PJM when it's needed in the future. In the power management firm’s latest auction, there weren't enough bids to fully guarantee that PJM will have enough power to keep the grid running reliably. That matters because the investments going into AI continue to rise. Last year, five of the biggest tech firms, namely Alphabet, Meta, Microsoft, Amazon, and Oracle collectively spent USD 397 billion on AI. This year, that figure is projected to nearly double to USD 781 billion. It could even surpass USD 1 trillion in 2027.
According to Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Officer of Altimetry Financial Research, there’s one tech CEO who is trying to cut down on that delay. Elon Musk, the SpaceX CEO, is building a factory in Texas to manufacture parts for gas turbines. These turbines can be used to generate electricity for data centers, giving them another source of power. Currently, turbine blades and vanes are in short supply and can hold up deliveries. Musk says producing the parts internally can reduce the amount of time it takes to get a turbine up and running by about 18 months. Professor Litman says his companies are already using this approach for AI facilities. xAI has used on-site gas turbines near its Colossus data centers. It's also moving toward a permanent 1.2 gigawatt (GW) natural gas power plant. That gives xAI more control over when new computing capacity can start operating. The AI Boom’s New Bottleneck Investors have spent years following the companies that supply AI with chips and computing equipment. Now, power is becoming a larger part of this story. As we mentioned previously, data-center demand is expected to hit a whopping 194 gigawatts by 2035. Meeting that demand will require a lot more electricity and huge upgrades to the power grid. Musk's decision to manufacture turbine parts and build a power plant close to AI data centers shows just how dire the situation has become. The bottom line? The firms that can shorten the amount of time between building data centers and getting them online will have a competitive edge. Said another way, these are the sorts of businesses you should be looking to invest in in today’s AI boom. Hope you’ve found this week’s insights interesting and helpful. Stay tuned for next Wednesday’s The Independent Investor! There’s a moment—usually subtle and almost forgettable—when noise turns into signal. Learn more about the bull market lessons from a New York deli in next week’s article! |
Miles Everson
CEO of MBO Partners and former Global Advisory and Consulting CEO at PwC, Everson has worked with many of the world's largest and most prominent organizations, specializing in executive management. He helps companies balance growth, reduce risk, maximize return, and excel in strategic business priorities.
He is a sought-after public speaker and contributor and has been a case study for success from Harvard Business School.
Everson is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants and Minnesota Society of Certified Public Accountants. He graduated from St. Cloud State University with a B.S. in Accounting.
