Since the launch of ChatGPT in 2022, stocks related to the artificial intelligence (AI) theme have dominated market returns and capital spending. While the focus has so far been on the technology companies and chip makers that are driving AI development, attention is now turning to the role that energy companies, utilities, and critical mineral producers will play in the future growth of AI, as well as the social impact of AI adoption.
Powering the AI boom
Electricity demand from AI data centres is set to rise sharply in the next few years. Nuclear power has the potential to meet this demand with reliable, zero-carbon energy, and natural gas can readily bridge the power gap when renewables are unavailable. However, increasing deployment challenges are boosting interest in solar and wind, which can be installed more quickly and offer reliable generation when used in combination with battery storage solutions. Public utilities and private infrastructure assets with exposure to these trends appear well positioned for growth.
This rising energy demand is not without negative externalities which need to be managed, with public opposition mounting over both increases in electricity prices and the physical impacts in neighbouring communities (light, noise, pollution, etc.). With affordability concerns expected to feature in upcoming elections, tech companies and infrastructure providers will need to build public trust through transparency and responsible governance. Community engagement and governance best practices are key themes for our stewardship team.
Critical minerals and water constraints
The AI revolution also depends on access to critical minerals and water. Copper, for example, is essential for electrification and electricity grid expansion. However, supply of the commodity is constrained, which is expected to keep prices elevated, incentivise investment, and boost merger activity among copper miners.
Water, meanwhile, is a strategic resource that is vital for data centre cooling and chip manufacturing. As demand for water grows, water scarcity in some regions, growing community opposition, and performance requirements of cutting-edge chips are expected to spur innovation and the adoption of water efficient cooling technologies.
Jobs, cybersecurity and the road ahead
While the impact of AI on jobs remains uncertain, we see an opportunity among education technology platforms, which are positioning themselves to personalise learning, improve outcomes, and match candidates to jobs. Meanwhile, AI is transforming cybersecurity, creating both new solutions and new threats.
For investors, navigating the challenges created by the growth of AI will require active engagement with companies across the AI supply chain. We think investors should focus on power and critical resources as strategic assets, while recognising that social impacts are increasingly important to the growth of AI infrastructure.