The AI power problem, and how to invest in it
In a gold rush, sell shovels. The AI shovel is now a gas turbine, a transformer and a grid connection.
Find the bottleneck, because the bottleneck is where the pricing power is.
How the AI power problem works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
The only five moats there are
If you cannot name which of these a company has, it probably does not have one. It is merely doing well, which is a different and far more temporary condition.
- 1
Follow the constraint
A data centre needs land, chips, and power. Land is available and chips are being manufactured furiously. Power is the piece that cannot be conjured: generation takes years to build, and the grid connection queue is measured in years too.
Whatever is scarcest sets the price. That is where the profit pools.
- 2
The demand is genuinely enormous and genuinely new
Electricity demand in developed economies was flat for two decades. Efficiency gains offset growth. AI has ended that, and the utilities and grid operators are being asked to do something they have not done in a generation.
- 3
But utilities are regulated, and regulation caps the upside
This is the part people miss. A utility with a monopoly is usually allowed to earn a regulated rate of return. Booming demand does not translate into booming profits the way it would in a competitive industry, because the regulator will not let it.
The money is more likely to be made further up the chain: turbines, transformers, cabling, cooling, and the engineering firms that build the things.
Check whether the company you are buying can actually raise prices, or whether a regulator decides its margin. That single question separates the winners here.
- 4
And ask whether it is a cycle
Everyone is building at once. Capacity booms end in capacity gluts; that is the memory cycle, the shipping cycle, and every other cycle in history. The equipment makers earn spectacularly on the way up and painfully on the way down.
You can name the bottleneck and say whether the company you like is allowed to price it freely.
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In a gold rush, sell shovels. The AI shovel is now a gas turbine, a transformer and a grid connection.
The near-monopolies and the commodities, side by side, because they look identical from outside and they are not.