⚡AI and energy go hand-in-hand

19 April 2024

AI takes a lot of energy. But exactly how much electrical power the game-changing tech will take might be something worth figuring out. Because that’s a line of thinking that might lead you to some of the more under-the-radar winners from the big AI boom.

What’s powering the AI boom?

The buzz around generative AI comes with a catch: all the data-crunching that’s required to produce the speech, text, images, and video needs physical hardware to make it happen. That means data centres – those warehouses packed with computing gear – are in high demand. Microsoft alone is launching a new data centre every three days.

At this pace, the industry is set for some serious growth. By 2035, the energy appetite of these data centres could devour over 480 terawatt hours of electricity a year in the US – that’s nearly a tenth of what the entire country uses, and more than double what they’ll consume this year.

And on a global scale, the International Energy Agency projects that power demand for data centres could hit over 1,000 terawatt hours by 2026 – that’s double what they used in 2022, and equivalent to the entire power consumption of Germany.

As an investor, what does this mean for me?

The boom in data centres means power grids have to expand. Power companies face the challenge of creating enough new generation and transmission capacity to keep up with skyrocketing demand. So, if you’re betting on a future where AI is everywhere, you’ve also got to bank on the energy infrastructure rising up to power it all.

This surge in electricity demand also goes hand-in-hand with an increasing demand for renewable energy sources. After all, we’re already seeing a global shift to cleaner, greener sources of power, with tech giants like Google and Microsoft aiming to power their businesses on nothing but eco-friendly volts.

If you’re looking to get in on the ground floor of this shift, you’ll want to start looking at the companies already investing in these renewable technologies. Our Environment and Cleantech Thematic portfolio might be a good start – it’s a diversified mix of assets that gives you exposure to both clean energy and the power infrastructure behind it.

💡 Investors’ Corner: Keeping a pulse on data

From interest rate decisions in the US and UK to crucial GDP data in China, global financial markets are bracing for a series of impactful economic disclosures. These not only reflect the health of major economies, but also offer insights that could guide future monetary policies and market directions.

US retail sales data has come in stronger than expected – while that’s a positive sign for its economy, it also means that reaching the Fed’s 2% inflation goal might take a little longer. The US Federal Reserve is holding off on potential rate cuts until September due to persistent high inflation, signalling a cautious stance that mirrors global economic uncertainties. On the other hand, slowing inflation in the UK may lead to pivotal interest rate decisions by the Bank of England in August.

Over in Asia, China’s economy just beat expectations, with GDP growth coming in at 5.3% in the first quarter of 2024 (our Simply Finance section below breaks this down) – a good start towards the country’s 5% overall target for 2024. Meanwhile, India's markets are buzzing with investor optimism as the country heads to the polls.

Knowledge is part of any investor’s repertoire – keeping up-to-date with economic updates can help you understand market movements and shape your investment strategies.

These articles were written in collaboration with Finimize.

🎓 Simply Finance: GDP growth

Gross Domestic Product (GDP) growth measures the rate at which the economy is expanding or contracting over a certain period, usually a quarter or a year. It's a bit like stepping on a scale to see how your weight has changed, but instead of kilos, it’s the value of all goods and services produced by a country. A healthy GDP growth rate means the economy is growing, businesses are thriving, and people are generally better off. Conversely, if the rate slows or goes negative, it can signal trouble.

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