76. Replay: AI Power Grid Pressure: The Price/Energy Ratio
Feb 14, 2025
This discussion jokes about the real ‘P/E Risk’ being price to energy, exploring the staggering power demands of AI technology. It dives into Nvidia's GPUs and the significant electricity consumption implications, highlighting the intersection of AI and energy. The conversation also identifies potential investment opportunities in sustainable AI solutions and emphasizes the importance of ethical investment. Furthermore, it analyzes the broader impacts of AI on the economy and energy grid, encouraging listeners to navigate these challenges wisely.
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insights INSIGHT
AI Investment Through S&P 500
Most people are invested in AI without realizing it, especially through the S&P 500's heavy tech weighting.
The S&P 500 is 31% technology, and AI is a significant driver within that sector.
question_answer ANECDOTE
AI's Energy Consumption vs. Public Needs
Jessica mentions a meme about cities asking people to reduce AC usage while AI consumes vast amounts of energy.
This highlights the contrast between essential energy needs and AI's energy consumption.
insights INSIGHT
AI Demand and Utility Sector Growth
The simultaneous high performance of technology and utility sectors suggests AI demand drives market growth.
Increased AI usage contributes to grid pressure, boosting the utility sector's performance.
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We are revisiting Episode 42, originally aired July 26, 2024, where we look at how AI Power Grid Pressure can also be a headwind to consider in your long-term AI investing strategy. Start with our AI Portfolio and Investment Thesis discussed in Episode 21 to understand the full AI investing picture. According to our very own Jess Inskip, "The real ‘P/E Risk’ isn't overhyped price to earnings. The risk is price to energy." (Get it? That's a P/E Ratio joke 👻) Most of us are invested in AI, whether we know it or not because the S&P 500 is mainly technology.
How Much Electricity Does Generative AI Use? Nvidia (NVDA) valuations are justified as the hyperscalers are top customers and we are seeing real earnings at incredible profit margins. The earnings potential makes sense. However, the energy consumption and subsequent pressure represent the real risk. Each Blackwell AI GPU sold by Nvidia consumes up to 1200 watts of power, so 3.5mn of them would consume 1.8GW of power in the US alone. (Consensus estimates 3.5b in GPU sales by 2027).
Validate Your Investment Thesis (What you eat, eats.) Look at the root of the problem with all of this AI grid pressure and see where the solutions might be (as in which companies are coming up with solutions for this bigger issue). "Sustainable AI" is still in it's infancy, but maybe there are some companies out there that are using AI for good and to help come up with solutions to some of these issues? Do your homework. 😉
AI Opportunities (but do your homework) The grid pressure is a longer-term risk, it does not mean the AI story has peaked yet: Opportunities still exist benefiting NVDA, AVGO, MRVL, AMD, and MU.
**Remember personal finance is personal, this is not advice. We educate you on how to do your own research to make the right wise investing decisions for yourself.**
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