The demand for power from data centers is expected to triple by 2030, driven by the rapid scaling up of artificial intelligence technology. This growth is projected to lead to an explosion in the use of renewable energy and natural gas, according to a recent report by Mizuho Securities. By the end of the decade, data centers are expected to consume 400 terawatt hours, which is equivalent to 50 gigawatts annually. This represents approximately 9% of the total U.S. electricity demand.
Renewable energy sources are projected to experience significant growth in response to the increasing demand from data centers. Solar energy demand is expected to increase by 7 gigawatts annually, while wind energy is forecasted to grow by 5 gigawatts per year through 2030. This represents a potential upside of 21% and 39% for solar and wind energy, respectively, over Mizuho’s current forecast. Companies like Nextracker and Array, which specialize in solar tracking technologies, are likely to benefit the most from this trend.
Solar module manufacturing stocks, such as First Solar, may not see significant movement until the outcome of the November presidential election, as it will determine the fate of the Inflation Reduction Act. Depending on the outcome, solar stocks like First Solar could see an increase of $17 to the current price target of $274 per share. However, the competitive landscape for solar companies may change if the IRA remains in place.
Alongside renewable energy, natural gas demand is also expected to increase significantly by up to 4 billion cubic feet per day by 2030. This represents approximately 4% of the current U.S. gas production. Gas is projected to play a backup role, filling in gaps when solar and wind power generation is affected by weather conditions. Companies such as EQT Corp., Williams Companies, and Kinder Morgan are expected to benefit from the growing demand for natural gas.
While the growth of artificial intelligence and data centers presents significant opportunities, there are also challenges and risks to be aware of. The industry faces multiple bottlenecks, with new power projects taking up to five years to be permitted and connected to the grid. Additionally, renewable investments could be delayed if a new administration cancels incentives under the Inflation Reduction Act or imposes higher import tariffs. Therefore, it is important for industry players to navigate these uncertainties effectively.
The future of power demand in data centers is expected to be marked by significant growth in renewable energy and natural gas usage. Companies in the solar, wind, and natural gas sectors are poised to benefit from this trend. However, it is crucial for industry stakeholders to address the challenges and risks associated with the rapid expansion of power demand in data centers. By carefully navigating these complexities, the industry can capitalize on the opportunities presented by the increasing use of artificial intelligence technology.