The 'Transition Fuel' That Will Ride the AI Energy Boom

Artificial-intelligence ('AI') poster child Sam Altman is pouring millions of dollars into nuclear energy...

The way he sees it, nuclear power is the only way we'll meet our mounting energy demands.

And he's not alone. Big Tech billionaires have been investing heavily in the space for years, believing that it's crucial to our clean-energy goals.

Now with the emergence of AI, our energy needs are much more dire... and investment in the space is even more important.

Giants like Microsoft (MSFT) and Amazon (AMZN) are clamoring for ways to tap into nuclear power. Meanwhile, Altman himself is pouring money into outright building the power plants through nuclear-energy startups Oklo and Helion.

Oklo is currently working on building a nuclear powerhouse in Idaho, which could eventually fuel data centers for large AI companies... like Altman's OpenAI.

Data centers require a ton of power, and they can't afford to risk sharing that power with the rest of the energy grid. For that reason, Altman has even invested in building his own data centers.

He wants to make sure his servers don't have to compete with other customers... and that there's ample energy available when he turns even more on.

What Altman seems to be missing is that nuclear power won't solve our rising energy demands – at least, not in the near term. Instead, our needs are far more likely to be met by an "old school" power source...

Data centers are energy hogs...

They take 10 to 50 times the amount of energy per floor space than a typical office building.

And many of them are strategically located right near power plants so they can easily access their energy supply.

But the larger data centers can take up to 100 megawatts of power... about a third of a nuclear power plant's entire capacity.

That isn't the only issue. It can take up to a decade to build a nuclear power plant.

And that's if you're lucky enough to get through all of the regulatory hurdles... Nuclear energy is still a contentious power source in the U.S.

Overall, it's just inefficient to rely on nuclear energy alone to power our data centers. Still, we can't afford not to invest in our power supply...

While electricity growth has remained mostly flat over the past several years, AI has sent projections for electricity demand through the roof.

U.S. electricity demand is expected to grow nearly 20% by 2030 – and 8% of total consumption is projected to come from data centers.

Big Tech companies have ramped up investments in nuclear as a result. Others with specific "net zero" goals have turned to renewable-energy sources like wind and solar power... though they pose their own problems.

Weather isn't consistent. Cloudy skies or a lack of wind can shut down data centers for days.

We need power that's reliable, abundant, and cheap...

Renewable and nuclear energy just don't cut it.

And with us not yet having mastered the question of a grid-level battery backup, there's really only one solution...

Natural gas.

Natural gas ticks just about every box we need for the time being. It's cleaner than coal and oil. And we have such an abundance of it that it's both cheap and reliable.

The U.S. is the biggest natural gas-producing country in the world... and we still haven't scratched the surface of our reserves.

According to data from the U.S. Energy Information Administration, at our current production rate, we have enough natural gas to last us decades.

Plus, natural gas power plants only take two or three years to launch. And we already have the infrastructure to transport gas all throughout the country.

It's not perfect... Burning natural gas still releases carbon into the atmosphere.

However, because it's so much cleaner than coal, it's seen as a great "transition fuel" as we figure out how to clear the hurdles on even cleaner energy sources.

Natural gas isn't going anywhere anytime soon...

No one wants to wait a decade for more power, especially with how fast AI technology is progressing and the rate at which data centers are being built.

As we explained today, renewable and nuclear energy aren't the best bet for our immediate needs.

Natural gas, on the other hand, is expected to supply a majority of the power demand from AI and data centers.

We're likely to see gas prices pick up as a result, which means the companies selling natural gas stand to benefit.

This could be a chance for savvy investors to get in on the AI energy boom from a less-obvious angle.

Regards,

Joel Litman
May 28, 2024