By Huma Ejaz - Vice President

1. Impact on Power Demand and Energy Costs

As AI technology continues to expand, there is a projected significant increase in power demand. In the U.S., peak electricity demand and energy growth rates are expected to rise from 2.6% to 4.7% over the next five years. This increase is largely due to the growing use of data-driven technologies such as AI and machine learning, which place higher demands on data centers—key consumers of electricity.

2. Data Center Costs

Data centers play a pivotal role in power consumption, especially those that support AI processes. Here's how AI influences energy use:

• Standard Data Centers: Typically, these facilities have a power density of about 12 kW per rack when AI is not involved.
• AI Training Phase: Power consumption can reach up to 80 kW per rack, which is approximately 6.7 times the power used in standard settings.
• AI Inference Phase: During this phase, power usage reduces to about 40 kW per rack but remains substantially higher than that of non-AI data centers.

These distinctions underscore the importance of cost management and policy consideration in AI-centric operations.

3. Changes in Valuations and Net Income Expectations

The integration of AI within data center operations has not only increased equipment valuations but also influenced net income forecasts:

• The 2024 and 2025 net income estimates for companies within the AI uptrend basket have seen upward revisions, indicating a bullish outlook on future earnings potential due to heightened demand.

Investment Opportunities

Investors are advised to consider various categories for potential returns:

• Smart Grids: Companies like General Electric Company(GE.US) might benefit from the heightened power demand driven by AI growth. Despite broader economic challenges, GE's strategic transformations could yield significant returns.
• Power-Generating Materials: Increased power demand could boost the need for essential materials such as copper and uranium. Investing in key suppliers like Freeport-McMoRan, Inc.(FCX.US) and Cameco Corporation(CCJ.US) may be beneficial.
• Utilities: In deregulated states, companies could utilize dynamic pricing models to enhance profitability amid rising demand. Notable firms include Vistra Energy Corp.(VST.US), Constellation Energy Group Inc.(CEG.US), NRG Energy, Inc.(NRG.US), Xcel Energy Inc.(XEL.US), NextEra Energy, Inc.(NEE.US), Southern Company(SO.US), Sempra Energy(SRE.US), American Electric Power Company, Inc.(AEP.US), and Entergy Corporation(ETR.US).

Conclusion

The ongoing advancement of AI across various sectors is expected to continuously drive the ancillary demand for power and data processing, presenting lucrative opportunities for investors aiming to capitalize on these trends.

About the Author: Huma Ejaz

Huma Ejaz serves as an Independent Director at LSE Financial Services Limited and the Vice President - Advisory at Sahm Capital. With over 18 years of extensive experience in management and board roles, she is a distinguished professional in strategic communication and problem-solving. Huma specializes in corporate finance, risk management, internal controls, feasibility reporting, and financial modeling.

Her professional qualifications include:

• Certified General Securities Qualification CME-1 for KSA from Capital Market Authority
• Certified Public Accountant-CPA (ICAP)
• Certified in Advanced Corporate Finance from LUMS
• Certified Director from the Pakistan Institute of Corporate Governance (PICG)
• Certified Financial Modeling and Valuation Analyst (FMVA)