The nuclear power industry is seeing a revival due to power-hungry artificial intelligence (AI) data centers.  Google recently announced that it will fund the construction of seven small nuclear-power reactors to be built by a startup called Kairos Power.  In September, Microsoft inked a deal with Constellation Energy to restart the undamaged reactor at Pennsylvania’s Three Mile Island.  Amazon also purchased a nuclear-powered data center for $650 million.  Firms are even considering building data centers near volcanos in El Salvador to tap into their geothermal power. 

Nvidia’s CEO calls these data centers “AI factories” to emphasize the industrial scale that will be needed to unlock this technology’s potential.  The term seems more prescient each day.

Note: 2024 figure is a full-year projection

Source: datacenterHawk

Even prior to AI, the number of data centers were rising rapidly and consuming enormous amounts of power.  In fact, the amount of power that data centers have ordered in the US and Canada is up 9x since 2015.  AI is only exacerbating the problem.  The International Energy Agency reported that a request to ChatGPT requires 2.9 watt-hours of electricity on average, which is nearly 10x as much as the average Google search.  Unlike traditional data centers, AI chips require a constant and reliable source of energy for training models.  Even a brief drip could damage a “training run” that costs tens or hundreds of millions of dollars.

This is not a new trend.  Major technology companies in the US have been “vertically integrating” for many years.  Instead of purchasing a service or product from a third party, their enormous scale allows them to do it in-house, often at a cheaper price.  For example, most of these firms develop their own computing chips instead of purchasing from other firms.  Amazon elected to build out its own transportation network instead of using FedEx, UPS, and others.  Netflix started as a distributor of third-party media content, but now the firm produces its own.  Major tech companies need large amounts of power, and they need it yesterday.  It’s unsurprising that they’re now building out their own and inking deals to receive power directly from a plant.  One person was quoted in a Wall Street Journal article saying, “Never before could anyone say to a nuclear-power plant, we’ll take all the energy you can give us”. 

This not only demonstrates the power and potential of AI, but also how unique these major technology companies are.  At HFS, we believe investors that continue to think conventionally in such an unconventional world risk being left behind.

The opinions expressed are those of Harrison Financial Services as of October 17, 2024 and are subject to change. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Please remember that all investments carry some level of risk, including the potential loss of principal invested.