Artificial intelligence (AI) requires a tremendous amount of computing power. That's driving blistering growth for leading-edge chips developed by companies like Nvidia. The hardware and software needed to power AI applications require lots of electricity. According to some estimates, AI data center racks require seven times more power than traditional ones, which already use a massive amount of electricity.
Power-hungry AI applications help drive the view that the U.S. will need a lot more electricity in the future. While renewable energy will play a key role in helping power AI data centers, intermittency and other issues suggest it will need some help carrying the load. That opens the door for nuclear energy to help fuel the AI megatrend.
A potentially powerful growth driver
Data centers are already power-hungry facilities. According to the U.S. Department of Energy, they consume 10 to 50 times the energy per floor space of a typical office building. These facilities currently use 2% of the country's electricity.
That percentage will grow significantly by the end of this decade, with AI potentially enhancing demand:
Data source: Constellation Energy.
As that slide shows, data centers could consume up to 7.5% of the country's electricity by 2030 at the high case for generative AI. That's on top of the accelerating demand from the growing adoption of electric vehicles, the electrification of heating (i.e., heat pumps), and other drivers. These factors will cause U.S. electricity demand to grow twice as fast through 2030 as it did over the previous decade.
At the same time power demand is surging, the country is racing to reduce its carbon emissions by retiring coal-fired power plants. While that will drive robust growth in renewable energy, the intermittency issues of solar and wind could impact the grid's reliability. Because of that, the country will need more baseload power sources like battery storage, natural gas, and nuclear.
Benefiting from the potential power surge
Given its ability to produce emissions-free baseload power, nuclear could play an increasingly crucial role in helping the country meet its future power needs. That could fuel strong growth for companies focused on the energy source.
For example, Southern Company (SO +0.44%) recently completed Plant Vogtle Unit 3, the country's first newly constructed nuclear unit in over three decades. Southern Company is currently working to finish Unit 4. It invested over $10 billion into building these projects, which should produce growing cash flow in the coming decades as power prices rise. That will give the utility more fuel to increase its dividend and invest in meeting the country's growing energy needs.
NYSE: SO
Key Data Points
Constellation Energy (CEG 2.33%) is the country's nuclear energy leader. It has the most competitive nuclear generating capacity and is the best operator in the sector. That gives it a strong and growing earnings base with upside to higher power prices.
It has already started tapping into powering data centers by agreeing to supply Microsoft with power for one of its data centers. Constellation estimates that its growth drivers will increase its base earnings by more than 10% annually through 2028. That should give it the power to deliver robust dividend growth (it recently boosted its payout by 25%).
Brookfield Renewable (NYSE: BEPC) (BEP +2.15%) is a global leader in renewable energy and sustainability solutions. It expanded its capabilities into nuclear last year by closing its strategic partnership with leading uranium fuel provider Cameco to acquire leading nuclear service company Westinghouse. That business generates stable cash flow from service contracts.
Meanwhile, it has significant growth potential, including servicing the rising demand from new nuclear power plants. That could enhance Brookfield's growth in the coming years.
Nuclear could play a vital role in powering AI
AI data centers are power-hungry facilities, which means electricity demand in the country could soar by the end of the decade as technology companies build more data centers to support this emerging technology. This trend should benefit companies in the nuclear energy sector like Southern Company, Constellation Energy, and Brookfield Renewable. This makes them compelling options for those seeking an under-the-radar way to capitalize on the AI megatrend.
