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AI data centers and EVs create great opportunities

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Some of the winners of the artificial intelligence (AI) and electric vehicle (EV) booms are easy to spot. For example, the stock prices of Nvidia, Microsoft, Tesla, and other companies have recorded significant increases, with expectations for future revenue and profit surges.

The development of AI data centers and the continued growth of EVs will benefit industries and companies that have not yet received much attention. As a result, the stock prices of some companies in these industries may catch up with the companies mentioned above.

This article focuses on the potential beneficiaries of the significant investments required to upgrade, expand, and operate the nation’s power grid to accommodate the continued growth of AI data centers and EVs. In parts 2 and 3, we’ll take a closer look at the industries and companies that could benefit most from the upcoming changes to the power grid.

To understand the power grid expansion needed to power AI data centers, consider the following comments from Lal Karsanbhai, CEO of Emerson Electric:

AI data center racks consume significantly more power than traditional data centers, and a search on ChatGPT consumes 6-10 times more power than a traditional search on Google.

Lessons from Levi Strauss

Before we uncover some of the underappreciated beneficiaries of the AI ​​and EV boom, let’s talk about the genius of Levi Strauss. Born in 1829, Levi Strauss opened a branch of his family’s dry goods business in San Francisco during the Gold Rush. Gold miners flocked to the area and stocked up on goods. They needed items like pickaxes, food, and clothing to build their wealth.

In 1873, Levi invented a durable pair of pants for miners made of denim and metal rivets that we call blue jeans today. Levi wisely realized that there was big profit to be made by supplying miners, so they wouldn’t have to risk their property or their lives to profit from a game of chance like gold mining.

Levi made a huge profit from the Gold Rush. But unlike most gold miners, his profits were consistent and sustained. His ingenuity continues to pay huge dividends for his descendants.

Let’s unravel the next Levi Strauss of the AI/EV rush: These less visible companies will act as key linchpins in maximizing the value of AI and EVs across the power grid.

Power grid status

We start with a brief overview of the power grid from EIA.

Electricity generated at power plants passes through a complex network of substations, transmission lines, and distribution transformers before being delivered to customers. The U.S. electric power system consists of more than 7,300 power plants, approximately 160,000 miles of high-voltage transmission lines, and millions of low-voltage transmission lines and distribution transformers connecting 145 million customers.

For reliability and commercial purposes, regional power grids are interconnected to form larger networks. At the highest level, the power system in the lower 48 states consists of three major interconnections, each of which operates largely independently with limited transfer of power between them.

US Power Grid Map

The EIA estimates that the United States will generate 4.178 trillion kilowatt-hours (kWH) of electricity in 2023. Fossil fuels will account for 60% of the total, with natural gas and coal being the two largest fuels, while nuclear and renewable energy will make up most of the remaining 40%.

In the future, not only will electricity grids need to be modernized and expanded to provide more electricity, but there will also be greater political and public pressure to make the environment cleaner. EIA predicts that global power generation capacity will increase by 30% to 76% by 2050.

Given the size of the US economy and the number of US companies leading the global AI and EV industries, a significant portion of the growing global electricity demand will likely occur within the US.

start from the back

As we all know, extreme temperatures are increasingly causing power grid outages. The problem is multifaceted. As renewable energy resources become a larger proportion of the power generation resource base, power grids become inherently more sensitive to extreme weather events. Traditional resources that are inadequately prepared for new extreme weather events are also showing vulnerability. As a result, expanding the power grid also requires utilities to invest in significant upgrades. For example, these upgrades include new federal regulations that require generators to be more prepared for cold weather.

according to The Wall Street Journal–

A report released last year by the American Society of Civil Engineers found that 70% of power transmission and distribution lines have already reached the latter half of their expected 50-year service life. Power companies across the country are increasing spending on maintaining and upgrading power lines.. Still, the ASCE report predicts that the U.S. will face an approximately $200 billion shortfall in funding to shore up its power grid and meet its renewable energy goals by 2029.

The article estimates that the investment shortfall could cumulatively reach $338 billion by 2039. Unfortunately, this estimate turns out to be too low. This article was written in February 2022, before the huge energy demands for AI data centers were fully realized.

The bottom line is that utilities, other distribution companies, and local governments will need to invest hundreds of billions of dollars over the next decade to modernize and expand the grid.

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How EVs and AI data centers will impact the power grid

EV

Assuming that the penetration rate of EVs continues to grow, electricity demand will increase significantly. EIA predicts that EV sales in the United States will exceed 3.5 million units in 2025. This number could rise to more than 8 million units by 2030. Furthermore, if improvements in EV batteries extend the range per charge and the number of charging stations rapidly increases, the EIA’s 2030 forecast could fall far short of reality.

As a side note, as I wrote in “Is Toyota the next Tesla?”, solid-state batteries, which Toyota is expected to produce as early as 2027, could be a game changer that dramatically boosts demand for EVs. There is.

By the way, EV sales will increase from 1 million units in 2022 to 1.6 million units in 2023 ( Market WatchEdmunds estimates that there are approximately 3.3 million EVs in the U.S., which is only 1% of the total number of vehicles.

electric car sales in usa

Estimates suggest that as EVs replace the majority of internal combustion engine vehicles, electricity demand could increase by 20% to 40% over the next few decades. Based on the quote below, this is likely a gross underestimate.

PG&E expects system demand to increase by up to 70% over the next 20 years as EVs are added. ” – Utility Dive

Not only will more power be needed, but the grid will also need to be upgraded to match the timing of EV-related energy demands. EV charging can be higher than the current peak load if it occurs simultaneously during peak hours, primarily in the evening.

AI data center

AI data center alone has approx. By 2030, U.S. electricity demand will reach 323 terawatt-hoursAccording to Wells Fargo, AI-based predicted electricity demand alone is seven times greater than New York City’s current annual electricity consumption of 48 terawatt-hours. Goldman Sachs predicts that data centers will account for 8% of total electricity consumption in the United States by the end of the decade. – CNBC

The same article quotes Dominion Energy CEO Robert Blue as saying:

“Accelerating economic growth, electrification and data center expansion are driving the highest demand growth in our history, and that momentum shows no signs of slowing down.”

Dominion Energy predicts demand for data centers in Virginia will more than double by 2030. Northern Virginia has the most data centers in the country.

While researching this article, I found many predictions and comments similar to the ones above. After all, AI data centers will grow explosively, and as a result, power demand will also increase significantly.

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summary

AI and EVs can potentially boost a country’s productivity growth and go a long way in boosting economic growth. However, the potential benefits come with heavy investments. Some companies have already made huge investments in these industries. Others, such as those related to the power grid, are only just getting started.

This article will be followed by two more articles highlighting the industries and stocks that stand to benefit most from power grid modernization and expansion, and those that can help utilities meet their environmental goals. intend to do something.


Speak to our advisors and planners today.

Lance

Michael Lebowitz, CFA He is an investment analyst and portfolio manager at RIA Advisors. He specializes in macroeconomic research, valuation, asset allocation, and risk management. RIA contributing editor and research director. CFAs are investment analysts and portfolio managers. Co-founder of 720 Global Research.

Follow Michael twitter or 720global.com for further investigation and analysis.
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2024/05/22

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