Big Tech’s AI Ambitions Could Supercharge These Energy Stocks

AI data centers are expected to consume a massive amount of energy in the coming years, and meeting that need could be a boon to some investments, according to Morgan Stanley. 

Morgan Stanley forecasts U.S. data centers will consume 65 gigawatts of power between 2025 and 2028, but available capacity could fall short by about 45 GW. To make up the difference, “all potential ‘de-bottlenecking’ solutions will need to be drawn upon,” the analysts wrote in a note on Tuesday. 

Possible solutions, they say, include converting crypto mining operations into data centers, building data centers at large nuclear power plants, and constructing new natural gas-fired power plants. 

But all of that is easier said than done. First, the rising price of bitcoin could discourage miners from converting their mining facilities or selling excess power to data centers. Second, concerns about stressing regional power grids could compel regulators to mandate that new data centers not come online until additional power sources are connected to the grid. 

That’s why Morgan Stanley expects to see hyperscalers and data-center owners adopt a “bridge” approach, “in which temporary, mobile generation is deployed” to address the regulatory and economic hurdles to quickly ramping power capacity.

Nuclear, Natural Gas Generator Providers May Benefit

Small modular nuclear reactors are one solution that gives companies the flexibility they’ll need. SMRs have the added benefit of providing reliable carbon-free energy that aligns with Big Tech’s emission-reduction goals. However, small reactors are a nascent, “next decade technology,” Morgan Stanley analysts said.

For that reason, cloud hyperscalers like Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), and Meta Platforms (META) increasingly have turned to existing nuclear infrastructure during the AI buildout of the past few years. Meta on Tuesday signed a 20-year deal with Constellation Energy (CEG), America’s largest nuclear power provider, to sustain its AI. Constellation and Microsoft last year agreed to bring back online a reactor at Pennsylvania’s Three Mile Island.

With SMRs still a ways off, new data centers are likely to rely on small, mobile natural gas generators from the likes of GE Vernova (GEV) and Caterpillar (CAT).

Hyperscalers may also buy from fuel cell manufacturers like Bloom Energy (BE), whose electricity servers are a low-carbon way to convert natural gas, biofuel, or hydrogen into power. These fuel cells, the analysts said, offer the benefit of short lead times, reliable equipment, the ability to add redundant capacity in the event of a unit failure, and exceptional flexibility in terms of power output.

“We believe [Bloom Energy] could quickly increase manufacturing capacity to ~3 GW per year, with the potential for further increases in output if demand grows,” the analysts wrote. “Bloom Energy is in our view one of the under-appreciated beneficiaries of the rapid growth in data center power demand globally.”