Venture capitalists are making increasingly big bets on AI startups by investing more than half a trillion dollars sector in the last five years.
But the smartest AI investment these days might be energy, according to to a report by Sightline Climate. Researchers have found that up to 50% of announced data center projects can be delayed. One of the biggest culprits is access to power.
Of the 190 gigawatt data centers the company is tracking, only 5 gigawatts are under construction. Last year, nearly 6 gigawatts of data center projects came online in Sightline’s database. An even larger percentage — about 36% — saw timelines slip to 2025. The delays may eventually subside and affect large enterprises and other companies that use AI for their businesses.
This supply-demand squeeze is an opportunity for investors. Here’s why.
Big tech companies like Google and Meta have devoted large chunks of their balance sheets to developing solar, wind and nuclear projects. These companies also support emerging technologies Form Energy’s 100-hour battery through direct investments and working with utilities to accelerate their adoption.
Dozens of startups are pursuing technologies that solve the energy problem. For example, Amperesand, DG Matrix and Heron Power are developing new energy conversion technologiesAnd companies like Camus, GridBeyond and Texture construction program can control the flow of electrons.
Power remains one of the most significant constraints for data centers, and this drawback will not change anytime soon. Artificial intelligence is expected to increase data center energy consumption by 175% by 2030. according to to Goldman Sachs.
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These grid failures are unprecedented in modern times, and they are driving up electricity prices across the country. This has prompted many tech companies to explore alternative ways to power their data centers. (The Trump administration senses an impending political crisis calls technology companies build their own energy source, pay higher tariffs, or both. Most, of course, had already made plans to do so.)
Network alternatives
Amazon, Google, Oracle and other big tech companies are working to minimize their dependence on the network. Several data centers are planned using a hybrid approach combining on-site power with on-site power or grid connectivity.
The largest data centers are leading the charge. Less than a quarter of projects that have identified an energy source will use on-site or hybrid; together make up 44% of the total capacity.
The shift is partly due to a lack of power generation equipment, ie gas turbines – and an old network. This paved the way for alternative energy sources.
Google’s recent deal to power a new data center in Minnesota shows one approach to solving the problem. The company will Blend wind and solar power with a massive 30 gigawatt-hour battery From Form Energy. Google also worked with Xcel Energy to develop a new rate structure that it says will help encourage the adoption of new technologies in the utility’s planning process.
Form Energy’s battery isn’t the only example. Grid-scale batteries are poised to take a big bite out of the energy market. By the end of this year, the US should have about 65 gigawatts of battery capacity. according to to the US Energy Information Administration. Like many of its peers, Form Energy is looking to capitalize on the momentum Amassing a turnover of 500 million dollars before the recent IPO.
An underrated technology
Power supply is only part of the story. Once the electricity reaches the grid or data center, it needs to be handled, which is mostly down to a simple transformer.
Most modern transformers use large blocks of iron wrapped with copper wire, a technology that is about 140 years old. It’s reliable, but as the power requirements of the data center increase, it becomes too bulky. One expert told TechCrunch that when server racks reach a power density of 1 megawatt, the power equipment needed to run them will take up twice as much space as the rack itself.
That’s why there were investors flows behind solid-state transformer startups More recently, those hoping that silicon-based power electronics could replace the ancient iron-copper technology. They are more expensive than existing transformers, but they are also flexible enough to replace several pieces of equipment in a data center, making them competitive.
Overall, the scale of investment in battery and transformer companies has been much smaller than some of the blockbuster rounds we’ve seen in the AI industry.
This is not a bad thing – these rounds are more attractive to investors. What’s more, as the world electrifies everything from transportation to heavy industry, the need for power will only increase, leaving investors struggling with AI. Perhaps the best AI investment isn’t in AI at all.
