The importance of artificial intelligence in the energy industry is prompting many financial advisors to look for investments in this sector, according to a report by InvestmentNews.
AI’s usage has fueled surging energy consumption, with a report by Goldman Sachs showing that this will result in a growth of data center power demand of 160% by 2030.
As this trend continues to grow, utilities have been the top sector of the S&P 500 this year and wealth managers are seeking more energy investments for their clients.
One example cited was the Utilities Select Sector SPDR ETF (Ticker: XLU), which is up over 19 percent year-to-date due in part to the AI boom. Also recommended were power generators such as Southern Company (Ticker: SO), which Kevin Mahn, chief investment officer at Hennion & Walsh, views as an opportunity to capitalize on the surge in AI.
“They provide electrical and natural gas utilities in Southern California and also in parts of Texas,” Mahn told InvestmentNews. “But guess what? Their customers are individuals, companies, and data centers. These data centers can’t manufacture their own electricity, at least not yet. So, they’re going to have to draw down from the electricity that’s available through their local utilities.” The company’s shares have risen 26% so far this year and have a dividend yield of 3.22%.
Another advisor finding opportunities in this sector is Josh Duitz, portfolio manager at abrdn, who notes the revolutionary role being played by AI in the energy industry.
“If you look back historically when we had the Industrial Revolution, it was underpinned by infrastructure, notably the railways. The car proliferation in the early 1900s was underpinned by road development,” said Duitz. “Today with artificial intelligence, it’s being underpinned by energy infrastructure. We think there’s great opportunities for data driven infrastructure, or in other words, towers and emerging markets.”
Duitz also emphasizes the importance of the AI infrastructure at a time when the world’s population, including the number of people living in cities, has been soaring in recent decades.
“We’re all using our iPads to communicate, and Zoom, and people are working from home. The data economy is growing about 30 to 40 percent in Africa,” said Duitz. “You need infrastructure to support it. You need cell towers there. Because of urbanization all those people are going to need utilities. They are going to need subways and roads. And infrastructure is really the core of that.”
Goldman Sachs Research estimates that while data centers worldwide currently consume 1-2% of overall power, that percentage will likely rise to 3-4% by the end of the decade.
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