AI is changing the data center landscape and unearthing an entirely new avenue of infrastructure demands — a hidden investment opportunity that’s currently under-appreciated by Mr. Market, according to Morgan Stanley.
The under-the-radar play: Power generation producers.
“The opportunity is around infrastructure… everything from power generation, power electronics, data centers — that growth rate is set to accelerate,” Morgan Stanley’s Stephen Byrd told Yahoo Finance Live.
Generative AI processing, which is typically done on graphics processing units (GPU, requires way more power given higher computational requirements. That need for more power is fueling rapid growth of data centers across the country, which are pressuring the nation’s already strained power grid.
“The stock has not done well, and yet that’s the type of technology that can allow data center developers to very quickly get new centers operational,” Byrd said. “The time it takes to get powered up is absolutely critical, and it’s incredibly valuable economically … Bloom Energy’s fuel cells can be deployed in 50 days.”
During Bloom Energy’s earnings call last quarter, CEO KR Sridhar told analysts he sees AI data centers as the company’s “single biggest segment” for growth in the next decade.
“The sales funnel for this sector alone is massive, not in the megawatts but in the gigawatts,” Sridhar said.
Beyond the maker of fuel-cell electricity generators, other independent power producers, including nuclear plant owners, are also poised to grow from the data center buildout ahead.
Bank of America research analyst Paul Cole sees Constellation Energy, Public Service Enterprise Group, Vistra, NextEra Energy, and Dominion Energy among the “clear beneficiaries” of the increase in power demand.
While AI’s energy use has soared in the past year, Wall Street pros tell Yahoo Finance the industry is still only scratching the surface when it comes to power consumption.
“GenAI growth, in terms of electricity growth, is going to be about 100% a year for many years to come. As the cost of compute drops, new use cases show up, so the demand for compute is only going to go up and up. We’re extremely early days in this dynamic, and now investors are starting to look across what I think of as the value chain to providing the power to these data centers,” Cole added.
