The Unsung Heroes of AI: How Power Producers are Fueling the Future

TipsForTraders | April 22, 2024

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As the artificial intelligence (AI) sector continues to evolve, a lesser-known investment avenue emerges, one that veers away from popular stocks like Nvidia (NVDA) and directs attention towards the integral role of power generation producers. According to Morgan Stanley, this segment holds significant potential, especially given the expanding infrastructure needs of data centers.

The driving force behind this trend is the increasing demand for generative AI processing, which heavily relies on graphics processing units (GPU). Such technologies necessitate a substantial amount of power, thereby accelerating the growth and development of data centers across the United States. This surge is putting additional pressure on the already taxed national power grid.

As Timothy Fox, managing director at ClearView Energy Partners, points out, data centers are critical to supporting not just AI, but also essential sectors such as industry, commerce, transportation, and healthcare. The challenge lies in expanding these facilities without disrupting existing infrastructure and industries.

Forecasts by the International Energy Agency (IEA) predict that global electricity consumption by data centers could more than double by 2026, soaring from 460 terawatt-hours (TWh) in 2022 to over 1,000 TWh, an amount comparable to Japan’s annual electricity use. This presents a lucrative opportunity for companies like Bloom Energy (BE), which specializes in fuel cells that can rapidly power up new data centers. Despite underperforming stock values, Morgan Stanley highlights that Bloom Energy’s technology enables data center developers to activate new facilities swiftly—within just 50 days.

Bloom Energy’s CEO, KR Sridhar, during the company’s latest earnings call, emphasized the significant growth potential within AI data centers, projecting this as the largest segment for expansion over the coming decade. He noted the company’s sales funnel in this sector is not just substantial but extends into gigawatts.

Key Takeaways:

  • The burgeoning AI industry is shifting focus towards the infrastructure requirements of power generation for data centers.
  • The rapid growth in data center electricity needs presents a strategic investment opportunity for companies like Bloom Energy, known for their quick deployment capabilities.
  • Bloom Energy, despite its current stock performance, is poised to significantly benefit from the increasing demands of AI-driven data centers.

Conclusion: As AI continues to redefine technological landscapes, the focus on underlying infrastructure, particularly power generation, becomes increasingly critical. For investors, exploring companies that contribute to sustaining and expanding this infrastructure offers a promising avenue for growth. Bloom Energy, with its efficient fuel cell technology, stands out as a particularly promising player in this evolving market. Such investments not only promise substantial returns but also support the sustainable growth of AI technologies and their integration into various critical sectors.