Short read: Big tech’s great AI power grab

Whilst a lot has been said about the big technology companies or the Magnificent Seven as they call them driving the rally in the US market in 2023, this year has seen an unlikely sector leading the rally – three of the top five best performing stocks in 2024 year to date have been from the utilities sector  – normally considered steady and boring. Unsurprisingly, big tech has had a role to play here as well. Google, Amazon, Microsoft and Meta are all building out massive data centre capacities for AI. And these data centres with step up in processing capabilities are power hungry to the extent that they are changing the power demand scenario.

“…Alphabet, Amazon’s cloud arm (AWS), Meta and Microsoft consumed 90 terawatt-hours (TWh) of electricity in 2022, as much as Colombia. And that was mostly before ChatGPT touched off the AI revolution in November that year. The ensuing hoopla led the International Energy Agency (IEA), an official forecaster, to predict that data centres (including those dedicated to AI and equally energy-hungry cryptocurrencies) will eat up more than 800TWh globally in 2026, double the amount in 2022. BCG, a consultancy, reckons data processing could triple its share of American power consumption by 2030, to 7.5%.”

Furthermore, big tech has also committed to clean energy. So a lot of the new energy capacity will have to come from renewables. To solve for this, they are taking matter into their own hands:

“On May 1st Microsoft and Brookfield, a big infrastructure investor, announced a deal to build 10.5GW of renewables capacity in America and Europe by 2030. This is meant to enable the software giant to meet its pledge to get 100% of its electricity, 100% of the time, from zero-carbon sources by 2030. The two partners have not revealed the price-tag, but adding 1GW of wind or solar capacity can cost about $1bn.

…In March AWS paid $650m for a 960-megawatt (MW) data centre in Pennsylvania powered by a nuclear reactor next door. Microsoft has struck a deal with Constellation Energy, America’s biggest nuclear operator, for supply of nuclear power for its data centre in Virginia, as a backstop when wind and solar are unavailable. Both firms have also been looking at “small modular reactors”, a promising though unproven nuclear technology.

Google, meanwhile, is dabbling in geothermal energy. It has signed the first-ever corporate deal to develop “enhanced” geothermal power with Fervo, a startup that has raised $430m in funding. Inspired by the shale industry, the hot-rocks hotshot has developed horizontal wells, monitored using fibre-optic cables. Its site in Nevada produces round-the-clock, carbon-free power for the local grid—which Google then acquires.

…The AI industry’s most exotic power plays come courtesy of Sam Altman, the techno-optimistic boss of OpenAI, maker of ChatGPT and Microsoft’s main model-making partner. In a quest to power the AI revolution, he has backed Helion, a nuclear-fusion startup, and Exowatt, which is developing solar modules that can both generate electricity and store it as heat. Mr Altman is now hoping to raise $500m for Oklo, which is working on nuclear micro-reactors that run on spent fuel from larger ones and that could power individual factories, corporate campuses and, of course, AI server farms.”

Gives a new meaning to ‘power’ concentration of the Big Tech.

If you want to read our other published material, please visit https://marcellus.in/blog/

Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.