How AI Will Change U.S. Infrastructure Forever

Income Investing

Recently, the AI discussion has taken a turn with the realization that the production of advanced AI chips and the building of massive data centers to house those chips will dramatically increase the amount of electric power needed in the U.S.

A recent forecast change by Georgia Power illustrates how much power demand will grow because of this. In January 2022, the utility issued a long-term plan forecasting a need for an additional 400 megawatts of power by 2030.

However, in late 2023, Georgia Power revised its Integrated Resource Plan, which called for 6,600 megawatts of energy by 2030. That’s 17 times higher than the growth projections of just two years earlier!

Here’s what that means for us investors…

Pylons connected with glowing power lines

Two factors are in play. First, the reshoring of chip manufacturing. The CHIPS Act provides billions of dollars to support the development of new chip fabrication plants in the U.S. Companies such as Micron, Qualcomm, Global Foundries, Intel, and TSMC currently have fabrication facilities under construction. Once these plants are up and running, they will require massive amounts of electrical power. They need reliable, steady, 24/7 power.

Second, the new generation of chips required for artificial intelligence need much greater amounts of power compared to previous generations. These AI chips will be housed in massive new data centers that will use massive amounts of electrical power. I have seen estimates that these data centers will use up to 100 times the power as those in other industries.

Georgia Power is just one public utility. At least it has realized the need to increase capacity massively. Will other utilities figure it out in time?

I see two possible solutions for the pending shortage in power for the U.S. grid.

It is possible that utility companies will be able to add capacity at a rate to keep up with demand. This will require massive spending and a focus on baseload power production, such as from nuclear, coal, or natural gas-fired power plants. The markets have figured this out, and the Utilities Select Sector SPDR Fund ETF (XLU) is up 12.5% in just the last month.

The other option would be for the owners/operators of the chip fabrication facilities and data centers to contract for on-site power production. Initially, the private power plants would likely be natural gas-fired, which is good news for upstream gas producers like Antero Resources Corp. (AR) and EQT Corp. (EQT).

Nuclear small modular reactors (SMRs) will come online in the 2030s and will likely proliferate around data centers. Currently, I recommend the Reaves Utility Income Trust (UTG) for growth in electric power production. UTG owns a combination of utility and infrastructure stocks.

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