Unveiling the Hidden Champions Fueling the AI Revolution
The world is on the brink of an artificial intelligence (AI) revolution, and while chipmakers and computer equipment manufacturers are jostling for a piece of the pie, there's another unlikely group joining the fray - utilities companies. These seemingly boring businesses are gearing up for a surge in electricity demand led by data centers and AI, presenting a unique investment opportunity for those looking to capitalize on the AI boom.
Data centers require an enormous amount of energy to develop and run, and with AI driving the latest stock market rally, utilities companies are preparing for historic increases in electricity demand. In fact, power demand from data centers has already been "humongous," and with the advent of AI, it has skyrocketed. According to Manju Naglapur, senior vice-president and general manager for cloud, applications, and infrastructure solutions at Unisys, "With all the money spent on data centers, the power consumption will increase massively."
Utilities companies have traditionally underperformed during periods of high interest rates, but the AI narrative has the potential to be the biggest driver of the industry. Across the US, utilities are preparing for historic increases in electricity demand led by data centers and AI, planning new power plants and transmission lines.
Investors are taking notice of this trend, with Goldman Sachs setting up two investment baskets - Power Up America and Data Center Equipment - for clients seeking alternative ways to play the coming AI explosion. The Power Up basket has soared almost 28 per cent, and the Data Center Equipment basket is up more than 18 per cent, significantly outperforming the S&P 500 tech sector's 8.3 per cent gain.
Energy availability and access to renewable power sources are key considerations for data center operators when deciding where to build. Utilities companies that can meet these demands stand to benefit significantly from the surge in electricity demand. Southern Co, for example, recently won approval to expand its capacity by 1.4 gigawatts to meet demand from data centers and other businesses.
Access to renewable power sources is also a significant advantage. NextEra Energy, which builds renewable generation for its own utility unit and develops renewables for others, is well-positioned to benefit from this trend. The US renewables and storage market opportunity has the potential to be three times bigger over the next seven years compared to the last seven.
Investors are also turning to companies that will strengthen the grid so utilities can adapt to the new high-energy environment. Companies such as Eaton and Hubbell, which supply equipment for power transmission and distribution, are expected to benefit significantly from this trend.
The AI revolution presents a unique investment opportunity for those willing to look beyond the usual suspects. Utilities companies, often overlooked, are poised to become the secret winners of the AI boom.
Source: <https://www.businesstimes.com.sg/wealth/ai-boom-s-secret-winners-companies-expected-power-it>
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