NVIDIA’s spectacular quarter and forecast are dominating headlines this week. 

The AI firm’s continued success, and the expansion of AI in general, hinges on something few people are discussing… energy.

A surge in energy demand is imminent. Within a year, the five-year growth forecast for national electricity demand has jumped from 2.6% to 4.7%. Much of this demand surge will come from artificial intelligence.

Source: Grid Strategies

Last week, I wrote that AI will radically boost productivity. AI-driven technologies need substantial energy and energy infrastructure to support them. Schneider Electric projects that AI-driven power use will grow 25%–33% annually through 2028.

Much of that power use will happen at new data centers sprouting up around the country. The US data center construction market is projected to grow from $20.21 billion in 2022 to $28.56 billion by 2028.

Boston Consulting Group expects data centers’ share of electricity use to triple to 7.5% by 2030, driven in large part by the expansion of AI.

Source: Boston Consulting Group

As John Mauldin recently wrote, “The energy usage from AI is going to be a massive game changer that is not in the price or even in the narrative today. We will look back in ten years and ask, ‘How did we miss it?’”

America’s industrial and manufacturing renaissance is the other primary driver of increased energy demand. The US is bringing critical industries back home, with the help of over $900 billion in government incentives and investments, largely from the CHIPS Act, the Inflation Reduction Act (IRA), the Infrastructure Investment and Jobs Act (IIJA), and various tariffs.

One example is the 200-plus new transportation and clean energy manufacturing facilities announced since the IRA passed in August 2022. You can see their locations on the map below.

Source: Grid Strategies

This trend is also showing up in manufacturing construction spending, which has spiked in the past two years.

I’ve written about this extensively in Macro Advantage, where reshoring is one of our core investment themes. The revival of US industrial and manufacturing capacity is a durable trend that’s supporting a wide range of investment opportunities. These are all energy-intensive activities.

Electric vehicles, increasingly electrified residential and commercial buildings, and plain old population growth will only add to the energy demand surge.

Clean Solutions

The US Energy Information Administration expects energy consumption to reach a record high this year. At the same time, demand for “clean” energy is rising. Carbon-neutral initiatives sit at the top of many corporate and political agendas. Yet only a small fraction of US energy comes from renewable sources, like wind and solar. Given the limits of renewable energy technology, that isn’t likely to change much in the near term.

Source: EIA

This is where nuclear energy offers appealing solutions. Nuclear energy is carbon neutral, and it can do something other clean energy sources cannot: provide around-the-clock baseload energy.

The sentiment on nuclear energy has come full circle. The percentage of US adults who favor expanding domestic nuclear power capabilities has jumped from 43% in 2020 to 57%. In Connecticut, where I live, State Rep. Steinberg captured the mood while speaking in support of adding another nuclear reactor in our state.

Here’s Steinberg:

When I first came to the legislature, I didn’t know about energy. … Then, we were a little skeptical of nuclear. We thought it was yesterday’s kind of energy. But as soon as I started doing my homework, I discovered that nuclear was a viable option—it’s carbon-free, and if you do a really good job managing the environmental and safety concerns, it really should be considered in the mix.

Politicians weren’t making statements like that five years ago.

The federal government is also supporting nuclear more through the IRA, the IIJA, and policies that help extend the lives of our 90+ operating commercial nuclear reactors and develop next-generation nuclear technologies.

Investors have caught on to this story, pushing the price of uranium, which fuels nuclear reactors, up 98% in the past year.

The US is coming off two decades of relatively flat energy demand. Now the data centers needed to support AI, along with manufacturing and industrial expansion, are accelerating energy demand projections. Eventually, nuclear will play a large role in meeting that demand. Natural gas, which is relatively clean, abundant, and available today, will also be crucial to meeting near-term demand. 

These are investible trends that deserve your attention.

Do you agree? Tell us what you think. Please leave a comment or question by following this link. The link takes you to a new community space dedicated to Global Macro Update. This is your place to ask questions, make suggestions, and have a conversation with me and fellow readers. I check the space frequently and would be happy to banter with you there!

Best regards,

Ed D’Agostino
Publisher & COO

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