The rising energy demands of AI are expected to propel the utilities sector’s 4.4% increase in 2024, with a 900% increase in data centre power needs.
TakeAway Points:
- The growth of AI is causing an unprecedented demand for utilities; in Chicago, data centres may increase power requirements by nine hundred percent.
- The Power Up America basket by Goldman Sachs increased by 28% in 2024, outpacing the 8.3% growth of the S&P 500 tech sector.
- Important participants in the transition to renewable energy sources to meet AI-driven demand are utilities like Southern Co. and NextEra Energy.
AI Drives Sector Revival in the Utilities
A shift that is transforming the historically steady stocks market is investors’ focus on the utilities sector as a means of profiting from artificial intelligence (AI) development.
Energy demands have increased dramatically, especially for data centers—which are essential for AI’s processing needs—due to the rapid advancement and use of AI by major tech companies such as Microsoft Corp. and Alphabet Inc. The recent increase in Alphabet’s market capitalization to over $2 trillion, along with increases for Microsoft, highlights the solid growth of the tech sector driven by advances in artificial intelligence.
Due in large part to smart cost reductions and the growing demand from AI-powered data centres, utilities are seeing a recovery in 2024 after a difficult year, with a 10% decline in 2023. Companies all over the US are increasing their capacity to produce power in order to meet the expected demand, according to Ryan Levine of Citigroup Inc. AI is a key growth driver for the utilities sector.
Driving the Revolution in AI
Utility companies are at the vanguard of this new industrial wave due to the exponential power requirements of AI technologies. Forecasts indicate that the amount of power required for data centres in the Chicago area alone will climb by 900%. Exelon Corp. and Southern Co. are among the utilities bracing for an unprecedented spike in electricity consumption.
The expansion of utilities is anticipated to be greatly aided by this demand; Southern Co. anticipates a 6% yearly rise in electricity sales, mostly from data centres.
According to the report, in an effort to provide investors with more ways to participate in the AI boom, Goldman Sachs Group Inc. has responded to this trend by developing investment baskets like Power Up America and Data Centre Equipment. These baskets, which concentrate on data centre equipment and utilities, will have increased by roughly 18% and 28%, respectively, in 2024, outperforming traditional tech sectors.
Energy from Renewables and Strategic Investments
Utilities such as Georgia Power have received regulatory authority to increase capacity, demonstrating the sector’s strategic relevance in the AI era as data centre operators look for places with plenty of power supplies.
In order to fulfil the rising demand, businesses like NextEra Energy Inc. are investing in renewable generation, which further emphasises the importance of renewable energy sources. This move to sustainable energy sources is in line with larger environmental objectives as well as the growth of the AI sector.
Utility companies that operate in areas with cheaper land prices, such as CMS Energy Corp., stand to gain from the Midwest’s emerging role as a major hub for data centre development. This shift in geography highlights the strategic importance of cost-effectiveness and power availability in AI-driven utility demand.
