Investing in Artificial Intelligence Beyond Tech: Real Estate, Energy & Utilities
Investors are expanding their horizons when it comes to investing in artificial intelligence (AI), moving beyond traditional tech companies and looking towards real estate, energy, and utilities. The increasing demand for data centers to support AI technologies is driving growth in the providers of data center parts. According to analysts, this includes power producers, grid equipment makers, providers of grid technology, and commodity companies linked to uranium and copper, which are essential for cabling and electricity networks serving data centers.
Data Center Power Demand and AI Workloads
- Expected power usage for U.S. data centers under construction is equivalent to more than 50% of the power used by existing data centers.
- Data center power consumption is projected to double even after the new data centers are operational.
- AI workloads’ power usage is forecasted to grow at a compound annual growth rate of 25% to 33% between 2023 and 2028.
- AI processing primarily occurs on graphics processing units (GPUs) which are power-intensive.
- Power consumption of GPUs has been increasing, favoring newer data centers designed for AI.
Companies Benefiting from Data Center Power Needs
Several companies are positioned to benefit from the growing power requirements of data centers, including Caterpillar and Equinix:
- Caterpillar:
- The company is a leading provider of engines for back-up power generation.
- Caterpillar’s power generation unit has shown strong growth even as other end markets slow down.
- The company is a significant manufacturer of diesel generator sets installed in data centers and hospitals.
- Caterpillar stock has a 7.6% potential upside with a price target of $385.
- Digital Realty Trust and Equinix:
- Both companies are beginning to capture the early stages of AI demand.
- Digital Realty Trust is a slower growth story than Equinix due to dilutive M & A and equity issuance.
- BofA expects shares of Digital Realty and Equinix to increase by roughly 24% and 33%, respectively.
Other Potential Beneficiaries in Data Center Infrastructure
- Aspen Tech and Eaton:
- Software company Aspen Tech and electrical components maker Eaton are also favored by BofA for their role in data center infrastructure and power supply.
- BofA predicts Eaton shares could rise by another 12.2% following a 25% increase this year.
- Energy Companies:
- Energy firms like Constellation Energy and Dominion Energy are expected to benefit from the growth of data centers and associated power needs.
- Data center demand is likely to outstrip supply as generative AI demand increases.
Hot Take: The Future of AI-Driven Investments in Non-Tech Sectors
As the demand for data centers and AI technologies continues to surge, investors are exploring opportunities beyond traditional tech companies. Real estate, energy, and utility sectors are emerging as key players in the AI investment landscape, driven by the increasing power requirements of data centers. Companies providing data center parts, power producers, and grid technology providers are poised to benefit from this trend. The growth potential in AI-related demand for infrastructure and power supply presents a lucrative opportunity for investors looking to diversify their portfolios.
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