Yahoo Finance Nvidia's blowout earnings highlight a challenge in the AI age
Nvidia's (NVDA) blowout quarter shows demand for data centers in the age of artificial intelligence is insatiable. The challenge, according to experts, will be powering the boom.
"The existing power infrastructure from the grid won't be enough to fuel all of the data center demand that is coming down the pike," Moody's senior economist Ermengarde Jabir told Yahoo Finance.
Data centers are physical locations where the advanced computing process happens. Power demand from data centers in the US is expected to more than double by 2030 thanks to use of AI, according to research from consulting firm McKinsey & Co.
"We are just in the first innings of AI," said Pradeep Tagare, vice president of investments at National Grid Partners, a venture capital arm of electricity and gas multinational National Grid (NGG).
Tagare notes utility companies were already planning for increased demand from EV adoption and the electrification of other industries. But the AI boom has added a whole other layer of complexity.
"This takes it sort of into a completely different league than what most utilities have been used to over the last decade," said Tagare. “What AI does is it creates exponential growth in a very short time."
Industry experts note demand for data centers is coming from hyperscalers like Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Meta (META), along with companies offering cloud computing as a service. Enterprise firms such as banks and pharmaceutical companies are also using AI for their own operations.
"People want to deploy these data centers right now," Nvidia CEO Jensen Huang told Yahoo Finance in an exclusive interview Wednesday following the company's earnings call.
"They want to put our GPUs [graphics processing units] to work right now and start making money and start saving money. And so that demand is just so strong."
Kevin Ooley, CFO of data center operator DataBank, says new buildouts — which includes securing the power source, land, zoning, building, and cooling equipment — can take anywhere between 18 and 24 months.
"Power is the big bottleneck right now," said Ooley. "Two years ago, it was supply chain, getting access to the equipment. I would say power right now has jumped ahead of that."
Power companies have been racing to meet growing demand.
Georgia-based Southern Company (SO) said its sales to data centers were up over 12% for its latest quarter compared to the same period last year.
“We're seeing a continued ramp-up of new facilities, existing facilities ramping up their usage,” CFO Dan Tucker told analysts earlier this month.
Similarly, Dominion Energy (D) management highlighted increased demand across the growing data center industry in Northern Virginia.
“Historically a single data center typically had a demand of 30 megawatts or greater. However, we're now receiving individual requests for demand of 60 to 90 megawatts or greater, and it hasn't stopped there," Dominion CEO Robert Blue told analysts in May.
"We get regular requests to support larger data center campuses that include multiple buildings and require total capacity ranging from 300 megawatts to as many as several gigawatts,” he added.
For context, one megawatt is roughly enough electricity to fulfill the instantaneous demand of 750 homes at once, according to one utility estimate.
Nuclear power provider Constellation Energy's (CEG) stock is up more than 90% year to date as companies increasingly turn to renewables and nuclear for energy needs. Constellation expects base earnings to grow by at least 10% annually through the decade.
Analysts are bullish about the possibility of placing Big Tech's large-scale data centers at Constellation's nuclear sites.
"The appeal of non-regulated nuclear, which is what Constellation owns, is that you could build a data center on the land at site and just directly hook into the data power plant there and take power," Neil Kalton, senior equity analyst at Wells Fargo, recently told Yahoo Finance.
In March Amazon bought a Pennsylvania-based data center for $650 million from independent power producer Talen Energy. The campus is next to Talen's nuclear power plant.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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