(Zero Hedge)—There is a lot to unpack in Goldman’s note, “US Policy Implications: Reliability, AI/Data Center Power Surge, More Nuclear/Fewer EVs,” which discusses President Trump’s “energy emergency” executive orders alongside the private sector announcement of the Stargate AI infrastructure project.
Goldman analysts Brian Singer, Brendan Corbett, and others noted that despite President Trump’s executive order freezing all Inflation Reduction Act funding disbursements, they remain “bullish on multiple sustainable themes” because of corporate/consumer/policymaker/regulator priority:
- Reliability of energy, power and water supply.
- Efficiency innovation towards energy, land and resource use. AI/Data Center power demand growth and willingness by Big Tech/hyperscalers to pay Green Reliability Premiums in support of nuclear generation and multiple other Clean Reliable virtual/on-site power sourcing.
- Increased embrace by Sustainable Investors of the need for AI and Automation to fill rising labor challenges accelerated by aging populations in developed economies with tailwinds for Reskilling/Education/Womenomics stocks.
The team of analysts noted a convergence of multiple drivers impacting Sustainable Investing themes and the broader US economy in 2025 that only provides tailwinds for other themes, including “Reliability, Efficiency, AI/Automation, Training/Reskilling, Womenomics, and Affordability/Access. ”
They see tailwinds for Green Capex to support growth and infrastructure modernization…
The analysts next provided a breakdown of President Trump’s executive orders related to energy and AI announced last week:
In the first days of the new US Administration, President Trump issued executive orders declaring a National Energy Emergency, reviewing wind energy permitting and promoting affordable/reliable energy and domestic natural resources.
What was broadly consistent with our prior reports. Much of the policy and priorities were in-line with discussions in Washington in October, our post-election outlook and our 2025 outlook, in particular regarding:
- Prioritizing acceleration of permitting processes for US energy/power/minerals development.
- De-emphasis on EVs and offshore wind.
- Suspension of further IRA loans/grants.
- Broad support for nuclear.
- Broad support for infrastructure/AI/data centers.
What was not consistent with our prior reports. Beyond the topics discussed in our prior reports, the executive orders issued in the opening days of the Administration:
- Call for a suspension of federal permitting for onshore wind projects pending the completion of a comprehensive assessment and review of Federal wind leasing and permitting practices.
- Pause the disbursement of funds appropriated through the Inflation Reduction Act pending a 90-day review of processes, policies, and programs for issuing grants, loans, contracts, or any other financial disbursements of such appropriated funds for consistency with the law.
- Supply and maintain a critical minerals National Defense Stockpile.
Four investment takeaways for key 2025 themes.
- In aggregate, the policy initiatives broadly support our bullish outlook for investment towards Reliability of power, energy and water which we believe will be a priority of regulators, policymakers, corporates and consumers.
- The increased focus on affordability we believe is bullish for the broad theme of Efficiency — energy, resources and land.
- Support for AI/data centers benefits companies in the supply chain of the AI/data center global power surge, in our view, including those providing low-carbon solutions.
- At the same time there remain uncertainties, most importantly over the sustainability of IRA tax incentives and outlook for federal permitting of onshore wind. Not all onshore wind projects require federal permits, suggesting greater nuance regarding company-specific impact.
The analysts turned their focus on “AI/data centers’ global power surge: Continue to see aggressive US/global growth, all-in approach to power sourcing.” This coincides with our “The Next AI Trade” note in April 2024.
Here’s more from the analysts about the data center power surge that will boost demand on the grids through the end of the decade:
Our analysis suggests a 160%-165% increase in data center power demand by 2030 vs. 2023 levels. In the US, this implies that data centers will contribute a ~1% CAGR to overall US power demand; our Utilities team in its April 2024 report expects overall US power demand CAGR of 2.4% through 2030. We see data centers adding a 0.3% CAGR to overall global power demand. Our base case implies data center power demand moves from 1%-2% of overall global power demand to 3%-4% by 2030. In the US, the pace of mix increase is even greater, more than doubling by 2030 from 4% in 2023. If global data center growth in 2030 vs. 2023 levels were its own country, it would be a top 10 global power consumer.
However.
The analysts cautioned that, amid the surge in data center power demand, five potential constraints could pose significant risks to their updated base case of a 160% jump in global data center power demand growth in 2030 vs. 2023 levels:
- Will AI server shipments be constrained by data center capacity? Our analysis led by our Telecom Infrastructure team suggests a tightening market for data center real estate in the coming years but sufficient capacity for our base case expectations for power demand.
- Will data center capacity be constrained by power infrastructure? Our analysis led by our Utilities team suggests a combination of new generation additions and greater utilization of existing capacity will be sufficient to meet data center power demand with transmission/interconnection the greatest risk. The investment split of the intended $500 bn Stargate project into AI servers vs. other infrastructure remains unclear. Broadly, we believe a $50 bn purchase of high-powered AI servers would lead to about 8-17 TWh of annual power demand, depending on power intensity of the servers purchased (new gen vs. older gen).
- Will power infrastructure be constrained by low-carbon optionality/cost? We believe Big Tech will continue to take an all-in approach to data center power sourcing, with continued willingness to pay Green Reliability Premiums while at the same time prioritizing time-to-market. We estimate the impact of major hyperscalers absorbing Green Reliability Premiums consistent with our recent AI/data center power surge report represents a modest 2%-3% of EBITDA and a minimal impact on >30% corporate returns. We note that Microsoft’s CEO noted continued intentions to achieve 2030 decarbonization objectives in a CNBC interview on January 22, and Amazon’s Chief Sustainability Officer was quoted in a press report as staying course on low-carbon goals.
- Will new-gen AI chips drive lower or higher aggregate power demand? We assume Big Tech cash flow/budgets will be the key constraint, leaving upside risk if there are no constraints and downside risk if compute speed demand is finite. We continue to see more risk to the upside (i.e., fewer capital constraints) while AI is in the training phase.
- Will AI server demand be constrained by AI results/innovations? This will remain key to watch, particularly from a Sustainability perspective whether we see accelerated efficiency solutions in the health care, energy, agriculture and education sectors.
The analysts then shifted their focus on “underinvestment in infrastructure” amid tailwinds by the Trump administration, plus ongoing power demand shift higher:
We believe the confluence of rising power demand, historical underinvestment in infrastructure and rising temperatures/more extreme weather events will continue to drive rising tailwinds for investments in Reliability — primarily of Power/Energy and Water. We continue to see opportunity for investment in stocks levered to the theme globally, which we believe will be a priority for both policymakers and corporate/residential consumers.
Infrastructure replacement and hardening both necessitate Reliability investment. Our meetings with corporates, regulators and policymakers in 2024 indicated increased recognition of the need for grid/water infrastructure hardening and modernization. This is due to both underinvestment in recent years as well as a wider range of expected temperatures between summer and winter. We believe both policymakers and regulators will look to reduce risk of outages and as such prioritize measures that would improve Reliability and Resiliency.
Adaptation will likely be a rising theme regardless of climate outcome, in our view. We believe the growing realization of potential risks/impacts/opportunities as global temperatures rise will serve to further investor and corporate focus on Adaptation. Since 1970, the world has seen an acceleration in temperature rise vs. the 1850-1900 average, per Berkeley Earth data. In the near to medium term we believe investors and corporates will take increased measures to quantify physical risks, increase investments towards Adaptation mitigation/solutions and look for new ways of gaining exposure to Adaptation solutions. Our meetings with regulators and corporates suggest recognition of the need to invest to mitigate Reliability risk from extreme weather events or more volatile summer/winter temperatures via investment in water/power solutions.
Generational growth will act as a further tailwind for infrastructure spending. We expect electricity demand growth in the US and Europe to accelerate to levels not seen in a generation, a function of electrification (Europe and US), AI/broader data center demand (US and Europe) and industrialization/reshoring (US). Also, with an eye on reducing risk of outages, we believe regulators will support investments to meet rising demand, with particular support for affordable technologies that advance meeting demand and reliability goals. We also see regionalization driving increased water infrastructure needs in select geographies.
Reliability a driver of recent US power M&A. On January 10, Constellation Energy (CEG, Coverage Suspended) announced plans to acquire privately held company Calpine, which would fuse Constellation’s largely nuclear generation fleet with Calpine’s largely natural gas generation fleet. The companies in their statement announcing the deal highlighted the increased need for Reliability amid rising demand growth, in particular from data centers.
Goldman’s Utilities Research teams provided their outlook on US electricity consumption…
To conclude, the analysts said a more significant shift is underway within the Trump era: “Accelerated nuclear generation expansion combined with reductions in incentives for electric vehicles in the US may not derail overall Green Capex while potentially leading to net lower long-term carbon emissions.”
Let’s not forget that in December 2020, one of our major themes was the nuclear trade.
Separately, on Saturday, we provided readers with Michael Hartnett’s latest Flow Show, which shows the 10 biggest themes through the end of the decade.
Bypass Big Tech Censors
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