Op-Ed: Making friends with the trends on AI and energy



There’s a useful phrase in investing: The trend is your friend. If the current is flowing in a certain direction, go with the flow. That’s why investments in tech have done better than in buggy whips.

Of course, in the $28 trillion U.S. economy, many trends beg to be tracked. Sometimes they’re in conflict – if e-commerce is going up, department stores are going down – but other times, they can be harmonized, with everyone winning.

For instance, there’s the issue of artificial intelligence (AI) and carbon fuel consumption. AI is associated with blue states such as California, while carbon fuels are associated with red states such as Texas. And as we know, blue and red are rumbling a lot, politically. But they can still do mutually beneficial deals.

An April 24 report in The Wall Street Journal quoted Aaron Ginn, CEO of Hydra Host, on the need for AI-driven data centers: “With what we’re seeing, the fervor to build is probably the greatest since the first dot-com wave.” The late 1990s were, in fact, go-go; the NASDAQ more than tripled in just three years. The Journal further reported that demand for data centers is growing 26 percent annually; just in 2023, Microsoft’s data-center budget exceeded $30 billion. Indeed, future AI investment is being denominated in the trillions.

Yet all this AI growth, including for investors, is contingent on abundant energy. According to one estimate, a query to ChatGPT consumes 60 times as much energy as a search on Google. Rene Haas, CEO of chip maker Arm, projects that data centers will consume a quarter of America’s power by 2030, up from four percent today.

Yes, it’s likely that greater efficiencies will be discovered. However, there’s no such thing as a country with a high standard of living and low energy consumption.

So as AI grows, so will our hunger for energy. And that’s a potential win-win for investors, on the demand side and on the supply side. Including, interestingly enough, carbon energy. You see, for all the discussion of the “green energy transition,” carbon fuels account for a tad more than four-fifths of total U.S. energy consumption, a share that hasn’t much budged in half a century.

So while it’s compelling that the stock of AI chip-maker Nvidia has more than quintupled these last three years, it’s at least noteworthy that the stock of Exxon has more than doubled. Exxon may lack Nvidia’s razzle-dazzle, but without energy, there’s not much dazzle. The experience of Germany in the past few years has taught a sobering lesson: You can’t power a prosperous economy on solar and wind.

OK, but if we burn carbon fuels, what about climate change? So now we come to a third lucrative trend: Carbon capture. If the American political system is committed to spending trillions on “decarbonization,” then let’s make that trend, too, our friend – let’s make money by taking carbon out of the atmosphere.

The 2022 Inflation Reduction Act provided a huge boost to carbon capture – one headline called it a “bonanza” – as the new law upped the tax subsidy from $50 per ton of carbon to $85 a ton. The cost to the Treasury of that provision was originally estimated at $3.2 billion over a decade, and yet the total is destined to go much higher, because there’s been so much uptake on carbon capture.

We can pause to observe: An investor needn’t agree with the policy of the Inflation Reduction Act (including its title), to nevertheless see the value of following the money. Opportunities to invest in carbon capture abound.

Today, three trends are coming together: AI, carbon fuels, and carbon capture. To use a voguish word, there’s a circularity here, as improving technology means that captured carbon is reprocessed into cement, plastics, textiles, even pharmaceuticals.

Moreover, this win-win-win of business models also makes for political harmony, as California exchanges AI brains for Texas’ energy braun, and along the way, the carbon gets circulated.

Yes, AI and energy can trod the upward path together, and investors will make trillions. The trend is, for sure, your friend.

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