AI Boom Set to Hit Energy Hard and Fast
Plenty of people say the US stock market is in an “AI bubble” right now.
Case in point is the Wall Street Journal. They posted this week that the famous Shiller “CAPE” ratio recently crossed over 40 for only the second time ever.
Plenty of others will tell you that may be true, but it’s no timing tool either. I’ve read CAPE warnings from time to time for at least a decade. Meanwhile, US stocks have marched on to the biggest boom of all time.
What everyone can agree on is that AI needs energy – and a whole lot of it. Microsoft (NASDAQ: MSFT) CEO Satya Nadella recently said that energy supply is now the “defining challenge” of AI. You can have all the data centres and GPUs you like, but without electricity, they’re eyesores and paperweights.
This is looking like a problem. Look at the recent earnings announcements from US Big Tech. They’ll spend US$350 billion on capital expenditure this year. They’ll spend even more next year. They’re hungry for power to win the AI race against each other. It’s kind of like Daniel Plainview racing across California to lock up the best oil deposits in the movie There Will Be Blood. The winner takes it all.
Deloitte says that power demand from AI data centres alone could more than 30x by 2035. That’s going from 4 GW in 2024 to 123 GW in a decade – enough to power 100 million homes.
It’s certainly a big hit coming for US energy consumers because it’s already lifting costs. US retail power prices are up 6% nationwide in the last year, according to the US Energy Information Administration, and it’s even worse in some states. You only have to look at the surge in investment we’ve already seen since ChatGPT burst onto the world stage.
Source: Stansberry Research
This is going to play out in different markets. Research house Porter and Co say that AI data centres will take US natural gas demand from zero to 6 billion cubic feet per day by 2030. That’s at the same time the US looks to export more LNG to the rest of the world as sanctions come down hard on Russia.
We’ve seen similar tension in Australia in recent years, with some pushing for gas to be reserved for domestic use on the east coast in the same way they do in WA. Cheap energy was always a competitive advantage. In the age of AI, it’s even more important.
Then we have the major announcement around nuclear recently. In late October, the US government said it’s forming a “strategic partnership” with uranium producer Cameco (NYSE: CCJ) and Brookfield Asset Management (NYSE: BAM) to accelerate the rollout of nuclear reactors to the tune of “at least” US$80 billion.
No one in the uranium sector invested in building uranium mines with this in mind a decade ago. The whole industry was almost bankrupt. Plenty of analysts suggest the uranium price must rise to incentivise new supply – and quick smart – considering how long they take and what they cost.
And don’t forget the renewable space. Tesla’s (NASDAQ: TSLA) third-quarter update on October 22 showed its highest quarterly energy storage deployments. China is going hard on this sector too. This is giving a kick to the outlook for lithium, which is already up 20% over the last quarter.
Battery Energy Storage (BESS) is now the narrative driving this market, and not EVs – at least not in the way they were in the 2020–22 boom.
We’re not saying you should rush out and buy energy-related commodities. Far from it. They’re unpredictable and risky. One idea might be to consider industries related to this swelling demand, in the way the recent gold boom has lifted mining service stocks here on the ASX.
If US tech is going to bet big on AI – and it will be in the trillions of dollars by 2030 – there’ll be plenty of winners downstream of this spending. Energy is just one. It’s no secret, either. Our job is to help you find the others too.