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HPC and the Power to Be
Evaluating the High Performance Computing (HPC) and Artificial Intelligence (AI) Data Center Opportunity
Over the past few years, the prevalence of artificial intelligence (AI) and machine learning (ML) has resulted in a significant increase in demand for data centers (DC). The International Energy Agency recently projected that global DC electricity demand will more than double by 2028. In a May 2024 paper conducted by the Electric Power Research Institute (EPRI), DCs in the US will grow to consume anywhere from 4.6%-9.1% of total US electricity generation by 2030, compared to an estimated 4% currently. Given the growth in demand for DCs, coupled with a growing infrastructure constraint, we believe that the HPC opportunity is in the early innings and will continue over the coming years. In this report, we size up the HPC opportunity and corresponding power demand, and examine the implications for both the Growth & Innovation (G&I) and Energy Infrastructure (EI) coverage universes. Highlights:
The Power of Power
In this report, we size up the HPC opportunity and corresponding power demand, and examine the implications for both the Growth & Innovation (G&I) and Energy Infrastructure (EI) coverage universes. Given the broad implications of HPC DC demands, we believe that the opportunity has implications for both BTC miners and infrastructure companies.
June 3 Deal-day
On June 3, the value creation opportunity in miners from HPC became impossible to ignore. Several stocks have increased in value by more than 100% and 200%.
Duration and Scarcity
We believe the demand for HPC and power driven by AI will be a multi-year story putting miners who have spare capacity and power project development capabilities in a strong position.
Rule of Thumb
Based on our analysis of the Core Weave deal, 100MW is worth ~$1bn in value (including auxiliary power). Given the power assets of numerous BTC miners, including RIOT, BITF and GLXY, we believe significant optionality exists in these stocks.
Power Generation; Sourcing Firm Power Supply
With the increased development of renewable generation (wind and solar) and ongoing retirement of coal facilities, we have seen an increase in growing power generation supply in the US, but a decline in firm dispatchable generation supply. This presents an opportunity for cost competitive and dispatchable natural gas generators in regions well situated for data center demand growth. One name we highlight on this theme is Capital Power (CPX-T; SP; PT $40.00)
Natural Gas Distribution and Transmission Opportunities
Through rising natural gas generation demand, we see infrastructure companies with natural gas distribution (utilities) and natural gas transmission assets as well situated to benefit from rising domestic natural gas demand. Names we highlight on this theme include AltaGas (ALAT; OP; PT $36.00), Enbridge (ENB-T; OP; PT $56.00) and TC Energy (TRPT; SP; PT $54.00).
This note follows the ATB Energy Infrastructure & G&I Analyst Thematic Call hosted on June 25, 2024, “Evaluating the HPC/AI data center opportunity”. For a recorded version of the call, contact your ATB Capital Markets institutional sales representative.
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