IREN, Nebius Emerge As Top 'AI Utility' Picks As Expert Says Next Wave Of AI Trade Is 'Industrial'
News Summary
Shay Boloor, Chief Market Strategist at Futurum Equities, identifies the “next wave of the AI trade’s industrial,” highlighting IREN Ltd. (NASDAQ:IREN) and Nebius Group NV (NASDAQ:NBIS) as prime “AI Utility” picks poised for significant growth. Boloor emphasizes that these companies are building the grid infrastructure to run data centers, GPU clusters, and meet additional power demands, with demand locked in through multi-year contracts from hyperscalers like Amazon, Microsoft, and Google. Specifically, NBIS runs “some of the most efficient cooling systems in the world” and controls operations from hardware design to power sourcing, while IREN stands out for having the “cheapest renewable power in the world” at 3.5 cents per kilowatt-hour, and partners directly with NVIDIA on liquid cooling rack designs, operating tens of thousands of H100-class GPUs. The analyst also proposes a diversified portfolio to address AI’s escalating power demands, projected to quadruple global data center AI power needs by 2034. He suggests investments in battery storage firms like Tesla (NASDAQ:TSLA) and Eos Energy Enterprises (NASDAQ:EOSE), nuclear energy providers such as Oklo (NYSE:OKLO) and Nuscale Power (NYSE:SMR), and transmission companies like Vistra Corp. (NYSE:VST).
Background
The rapid advancement of artificial intelligence (AI) is driving unprecedented demand for high-performance computing infrastructure. This demand extends beyond just advanced AI chips to the foundational energy, cooling, and data center services required to power these computations. Currently, global data center power consumption is surging, with AI-related electricity demand projected to reach an astonishing 1,500 terawatt-hours by 2034, a fourfold increase from present levels. This intense demand is fueling significant investor interest in companies that can provide efficient, reliable, and sustainable power and infrastructure solutions, giving rise to the emerging investment theme of "AI utilities."
In-Depth AI Insights
What does the rise of 'AI utilities' signify for traditional AI investment strategies? The emergence of the AI utility theme indicates a shift in AI investment from initial focus on 'direct' beneficiaries like chipmakers and software developers to a broader, more foundational set of 'indirect' beneficiaries. This implies: - Rebalancing of capital flows: Investors may reallocate capital from high-valuation chip stocks towards companies providing stable infrastructure and energy solutions, which often have more predictable cash flows and stronger pricing power. - Deepening understanding of the value chain: The market is beginning to recognize the profound depth of the AI value chain, where computing power is ultimately constrained by its physical support systems. This elevates the strategic importance of energy, cooling, data center construction, and power transmission sectors. - Defensive growth opportunities: Infrastructure providers, benefiting from long-term contracts with hyperscalers amidst the AI boom, may offer a relatively defensive growth opportunity as their revenue streams are tied to the long-term trend of AI deployment rather than short-term sentiment fluctuations. Are IREN's and NBIS's competitive advantages sustainable, and what are the potential risks? IREN's "cheapest renewable power" and NBIS's "most efficient cooling systems" are significant competitive advantages, but their sustainability faces challenges: - Energy cost volatility and regulatory risk: While IREN currently enjoys inexpensive power, fluctuating energy market prices and changes in government renewable energy subsidy policies could impact its long-term cost advantage. Additionally, regulatory hurdles for renewable project approvals and grid integration could pose risks. - Technological obsolescence and hyperscaler bargaining power: While NBIS's cooling technology is efficient, data center technology evolves rapidly. Hyperscalers, as primary customers, possess significant bargaining power and in-house R&D capabilities, potentially seeking lower costs or developing alternative solutions internally, which could erode NBIS's edge in the future. - Capital intensity and scaling challenges: AI utilities are highly capital-intensive, requiring continuous, massive investments to expand infrastructure. A key challenge for both IREN and NBIS will be effectively financing and rapidly scaling operations to meet growing demand without significant shareholder dilution. Can Boloor's diversified 'AI Power' portfolio effectively hedge risks and capture opportunities? The proposed portfolio, encompassing battery storage, nuclear energy, transmission, and natural gas/renewables, aims to build a comprehensive AI energy ecosystem, hedging against risks of over-reliance on a single technology or company: - Synergy and risk diversification: This strategy acknowledges that AI's energy demands are multifaceted, requiring diverse solutions. By investing across the entire energy supply chain, investors can benefit from growth in different segments and diversify risks associated with specific energy forms (e.g., relying solely on renewables or fossil fuels). - Policy and technological uncertainties: However, the strategy also faces policy and technological uncertainties. For instance, nuclear energy expansion might be limited by stringent regulations and public acceptance, while battery storage technologies still require further advancement for large-scale, long-duration needs. While the Trump administration's energy policies might lean towards traditional energy sources in the short term, the long-term trend of investment in clean energy is expected to continue. - Execution and market timing: Building such a broad portfolio requires deep understanding of each sub-sector's dynamics and company fundamentals. Different energy assets may perform vastly differently across market cycles, making execution and market timing crucial for realizing expected returns.