Powering the AI boom

Beyond the software and chipmakers, where will the energy come from?

- ZACH RIAZ

It appears global investors are waking up and suddenly realising – who is going to power the artificial intelligence (AI) demand boom? We know the software and chipmaker companies who will benefit from the AI boom, as reflected in their share prices. However, attention has, rightly, also turned to how we are going to provide the electricity to power this structural growth story given how energy-intensive AI is. The utilities sector is now catching investors’ attention and we believe it will be an important theme over the medium term.

Utilities find a new life

The usually uneventful and boring utilities sector is getting some attention of late because of these types of questions. So much so that even rising long-term bond yields in the US have not disrupted the recent rally in utilities companies. Historically, there is a negative correlation between the two – that is, when bond yields rise, the share price of utilities falls. At the time of writing, the US Utilities Select Sector SPDR ETF was up 21.3% from its low in February this year, despite the US 10-year

Treasury rate also rising over the same period. The Australian utilities companies have also caught the bug, with the share price of ASX-listed merchant retailers AGL Energy (ASX: AGL) and Origin Energy (ORG) up 22.6% and 21.8%, respectively, over the same period.

AI-boom thematic broadening