"Unveiling the Hidden Link Between AI Stock Boom and Surging Energy Demand"
The AI hype has caused the need for power to skyrocket, with data centers consuming an enormous amount of energy. The S&P 500 Index's utilities sector fell 10% in 2023, but the stocks have since recovered, rising 4.4% in 2024. The AI narrative has captured the biggest amount of investor interest and 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. Goldman Sachs Group Inc. has set up two investment baskets - Power Up America and Data Center Equipment - for clients seeking alternative ways to play the coming AI explosion. The bank is picking companies based on four categories: unregulated and regulated utilities, smart-grid infrastructure, and power-generating raw materials.
The Power Up basket has soared almost 28% and the Data Center Equipment basket is up more than 18% this year, while the S&P 500 tech sector has gained just 8.3% in 2024. Energy availability is a key consideration when data center operators decide where to build. Typically, they go to a local utility to discuss how much power they need, and then the utility seeks approval to build a new plant or buy electricity from third parties.
Access to renewable power sources is also an advantage. Renewables and storage are a key enabler to help meet the increased demand for power. With data center developers looking for inexpensive locations, the Midwest is expected to become a hub of activity since land is cheaper than in other parts of the country.
However, all of this demand can only benefit utilities if they can produce the electricity to meet it. Many energy experts are concerned that the US power grid isn't prepared to handle the wave coming its way. Some investors are turning to the companies that will be brought in to strengthen the grid so utilities can adapt to the new high-energy environment.
In conclusion, the AI stock boom has a secret back door as energy demand soars, and utilities are reaping the benefits. The AI technology surge has caused a massive increase in power demand, and utilities are perfectly positioned to meet this demand. The AI narrative has captured the biggest amount of investor interest and has the potential to be the biggest driver of the industry. Utilities are preparing for historic increases in electricity demand led by data centers and AI, and Goldman Sachs Group Inc. has set up two investment baskets for clients seeking alternative ways to play the coming AI explosion.
Sources:
* <https://fortune.com/2024/04/27/ai-stocks-artificial-intelligence-investing-energy-demand-boom-utilities-renewables/>
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