Electricity demand from data centers, AI and crypto could double in 2 years. How to play it

Published Tue, Feb 6 20243:31 PM EST

From data center operators to suppliers, Barclays has a myriad of entry points for investors looking to capitalize on booming electricity demand. The firm pointed to recent data from the International Energy Agency, which forecasted that electricity consumption from data centers, artificial intelligence and the cryptocurrency sector could double by 2026. Data centers are "significant drivers" of this trend, IEA said, as their global electricity consumption could reach more than 1,000 terawatt hours in 2026 after consuming an estimated 460 TWh in 2022. That would be nearly equivalent to the electricity consumption of Japan, according to the agency. Some of this electricity usage is fueled by generative AI, considering large language models need to be trained and re-trained on a daily basis, and generative AI chatbot queries are highly energy-intensive compared to Google search queries. "The latest IEA electricity forecasts paint an even more alarming outlook for data center consumption," analyst Hiral Patel wrote in a Monday note. "[We] reiterate our view that accelerated investments in backup power, energy storage and cooling will be pivotal." We've been covering how generative AI will rapidly scale up global power demand (see our CNBC Pro deep dive on the topic here , and some of Morgan Stanley's favorite power providers and data center builders here .) Now, Barclays has a few more stock opportunities to highlight amid the push to ramp up "green data centers" around the world, especially as hyperscaler tech companies plan to one day power their centers entirely through clean electricity. Barclays said it is looking at three investment areas that are a key part of the trend: data center operators, data center suppliers and data center grid infrastructure builders. Some of the firm's U.S.-based plays are below: Microsoft is one of Barclays' top picks given its expansive data center footprint and its "bold" sustainability targets. The tech giant has around a 30% share of the public cloud market with more than 200 data centers globally, the firm said. Similar to its peer hyperscalers, Microsoft is aiming to operate on entirely renewable energy sources by 2025, by buying green energy through power purchase agreements . According to Barclays, Microsoft aims to be carbon-negative, water-positive and zero-waste by 2030. Barclays highlighted Microsoft's growing interest in using nuclear energy to power data centers via small modular reactors, or SMRs, which analysts think is a "key investment area to monitor" given nuclear's ability to greatly reduce emissions and provide greater stability than solar and wind power. In May 2023, Microsoft announced a PPA with startup Helion to buy electricity from its first nuclear fusion power plant in 2028. Electricity provider Constellation served as the power marketer for the project. Microsoft is also interested in electric power grid technologies, Barclays noted. After successfully using lithium-ion batteries at a Dublin data center , Microsoft wants to expand grid-interactive battery storage in other areas. Shares of the tech company have jumped more than 57% over the past year, and analysts think the stock could gain nearly 14% over the next year, according to FactSet. Data center revenue exposure is even higher for Digital Realty Trust , according to Barclays analysts. The company has a large, diverse footprint with more than 300 facilities around the world. That includes nine data centers in Ireland, which is a data center hotspot in Europe that's also under increased risk given its soaring electricity consumption, Barclays said. The firm noted that Digital Realty has a long-term goal of having renewable energy available to all of its customers, and that about 126 of its facilities are currently matched with 100% renewable energy. Among its most ambitious renewable energy goals is Digital Realty's aim to offer carbon neutrality for data centers in the European Union by 2030. Shares are up more than 26% over the past 12% months, and have gained about 7.5% so far this year on data center-fueled enthusiasm. Notably, Blackstone and Digital Realty announced a joint venture in December to spend $7 billion on developing 10 data centers across Frankfurt, Paris and northern Virginia. The stock hit a 52-week high on Tuesday after Stifel Nicolaus increased its price target on the stock. Barclays also highlighted semiconductor company Advanced Micro Devices as a data storage play. AMD is working to improve the energy efficiency of its processors and the accelerators that power servers for AI training and high-performance computing by 30x between 2020 and 2025, Barclays said. They noted AMD has roughly 25% of the global server CPU market. CPUs, or central processing units, are essential hardware in computers. Tech hyperscaler Amazon , power management company Eaton and chipmaker Advanced Micro Devices are among other Barclays' top plays for the AI-fueled data center boom.