Elon Musk’s recent comments in April regarding the challenges faced by artificial intelligence (AI) due to constraints in electricity supply echo sentiments previously expressed by Amazon (NASDAQ:AMZN) CEO Andy Jassy. Both Musk and Jassy underscore the significant energy requirements associated with emerging generative AI services. Additionally, Sam Altman of OpenAI emphasized the escalating energy demands of AI technology during the World Economic Forum in January.
The burgeoning AI industry confronts a dilemma: the necessity for robust data centers and adequate power sources. However, the current constraints of the electric grid could impede AI progress.
Explosive Growth in Data Centers
Data centers, essential for the AI economy, demand significant capital expenditure, with estimates exceeding $225 billion by 2024. Nvidia (NASDAQ:NVDA) CEO Jensen Huang foresees the necessity for building $1 trillion worth of data centers in the coming years to support generative AI. Despite potential efficiency gains, the International Energy Agency (IEA) projects global data center electricity consumption to more than double by 2026.
Opportunities in Electric Utilities
Investors seeking exposure to the AI boom might find utilities, traditionally considered a dull market segment, a lucrative option. While the S&P 500 utilities sector faced challenges in 2023, 2024 has seen a rebound, with utilities like Constellation Energy (NASDAQ:CEG), Vistra Energy (NYSE:VST), and NextEra Energy (NYSE:NEE) forecasted to experience a 33% increase in earnings per share.
Why NextEra Energy Stands Out
NextEra Energy (NYSE:NEE), owner of Florida Power & Light Company and a leading renewable energy generator, emerges as a promising investment. With nearly 60 GW of renewable generation capacity, NextEra is well-positioned to meet the escalating electricity needs of data centers. The company’s focus on renewables, particularly solar and energy storage, aligns with future market trends.
NextEra Energy’s CEO, John Ketchum, emphasizes renewables and storage as pivotal in meeting increased demand, projecting 6% to 8% annual earnings growth through 2026. With a high-quality regulated utility in Florida and a robust renewable energy business, NextEra Energy offers investors a compelling combination of dividend security and renewable energy growth potential.
Investment Recommendation
Considering its strategic positioning and growth prospects, NextEra Energy stock presents a buying opportunity, particularly below $75.
Featured Image: Freepik
