AI could demand a shocking amount of electricity - check out this chart

By Victor Reklaitis

Utilities are seen as a cheap way for investors to get exposure to the artificial-intelligence trend

While you might be trying to use less electricity in order to save money, developers of artificial-intelligence tools are heading in the other direction.

The chart above shows how AI is expected to require much more energy in the years ahead. Demand is estimated to ramp up from 8 terrawatt-hours this year to 652 terrawatt-hours in 2030. A terrawatt-hour is equivalent to consuming 1 trillion watts of power for an hour.

The interim CEO for American Electric Power Co. (AEP), Ben Fowke, offered the chart Tuesday as part of his prepared testimony for a hearing held by the Senate Energy and Natural Resources Committee.

"Demand for electricity was almost flat for two decades. We are now beginning to see this trend reverse - driven by large customers such as industrial manufacturers, data processors and others who require significant amounts of power," Fowke said as he spoke before the committee.

He told the panel that a large manufacturing facility just a few years ago might have required the same amount of power as 100,000 homes, but now it's common for a single data center to need up three times, or even 15 times, that amount of juice.

"As technology evolves, power demand from data processing is expected to double nationwide in three years. One small example of this demand surge - OpenAI's ChatGPT requires 2.9 watt-hours per request, and that's nearly 10 times more power than a typical Google (GOOG) search," Fowke said.

The AEP executive told lawmakers that they'll "need to work together to quickly build new sources of electric generation and high-voltage power lines to deliver electricity where it's needed."

Utilities stocks XLU have soared over the past month, gaining 11%.

"Investors are seeing utilities as a way that they can invest in AI at a price-to-earnings ratio of around 17 and get a 3%-4% dividend yield ... without having to buy Nvidia (NVDA) at an over 70 P/E ratio," one portfolio manager recently told MarketWatch's Isabel Wang.

Related: Nvidia earnings are on deck, and Wall Street wonders just how big the beat could be

And see: AI sector is on course to use as much electricity as Spain in just three years, new report warns

-Victor Reklaitis

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05-21-24 1621ET

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