Nvidia and Supermicro have garnered significant market attention, but two other S&P 500 companies are also standing out for their profitability. Vistra and Constellation Energy, though less known, are the other two most profitable companies in the index this year, just behind the chip manufacturers. While Nvidia and Supermicro benefit directly from the rise of artificial intelligence (AI), Vistra and Constellation Energy are collateral winners of this technological trend. The primary cause of this silent boom is the enormous amounts of energy that AI and databases require. According to a recent Goldman Sachs report, energy demand in the United States is about to experience significant growth driven by these same factors.
AI and Energy: Booming Sectors
Since the popularization of ChatGPT, the AI phenomenon has continuously developed, with tech giants like Amazon, Microsoft, and Apple venturing into improving this technology. This leads to massive growth in related sectors, such as databases (needed to provide knowledge to AI). However, all this not only requires the use of the most advanced technology but also powerful cooling systems to keep this industry growing. According to Folha de S.Paulo, a single database can consume as much energy as a city of 30,000 inhabitants.
Consequently, the stagnant electricity demand in the US has taken off again. Nvidia and Supermicro are obvious bets in this sector due to their role in manufacturing processors for AI. However, Vistra and Constellation Energy, energy companies, have found their niche thanks to the growing demand for electricity driven by data centers and other technological infrastructures. This has allowed investors to seek indirect alternatives to benefit from the AI boom.
The energy consumption figures of prominent companies like Nvidia have continued to grow along with their stock prices. According to their dossiers on energy expenditure, we can see truly surprising figures. Additionally, there is a visible increase in megawatt-hours, reaching 600,000 annually, along with a significant rise in the share of renewable electricity, which almost triples the 2022 figure.
Las emisiones medioambientales que todos imaginamos no son las únicas repercusiones de esta industria. El consumo de agua para garantizar el suministro eléctrico de estas compañías ha crecido en línea con los kilovatios-hora. Por ejemplo, el consumo de agua de Microsoft (megalitros) en 2023 alcanzó casi 26,000, 10,000 más que en 20220.
Over the past two decades, energy demand in the US has been practically stagnant, with an average increase of less than 0.5%. However, electricity use for data centers is expected to double by 2030, representing 8% of the country's total energy demand, up from 3% in 2022. This change has positioned Vistra and Constellation Energy as leaders in the S&P 500, with Vistra rising 139% and Constellation Energy 88% so far this year, surpassed only by Supermicro (+216%) and Nvidia (+172%).
Despite the sudden evolution, these companies are expected to continue growing. According to market consensus, Supermicro could still increase by 15.4% in the next 12 months, Vistra by 17.4%, and Constellation Energy by 6.8%. Nvidia, though with a more limited trajectory of 1.3%, still has potential for upward revision. However, some analysts believe the AI fever has gone too far, even though these "four magnificent" companies remain a solid bet.
The energy hunger of this industry is such that the currently inactive Three Mile Island power plant, famous for the worst nuclear accident in US history, might be reopened. Located along the Susquehanna River in Pennsylvania, this plant experienced a partial reactor meltdown in 1979, causing national panic and shaking the nuclear industry. Now, as part of a broader effort supported by the White House, there is an aim to reactivate inactive nuclear facilities, a milestone never before achieved in the United States.
Independence and Opportunities
Vistra and Constellation Energy benefit from being Independent Power Producers (IPP), operating in a free market where electricity prices are set by supply and demand. This model allows them to better exploit the AI boom compared to regulated utilities, which have less flexibility to invest in new projects. In fact, while Vistra and Constellation Energy have soared, the 25 regulated utilities in the S&P 500 have barely revalued by 7% over the same period.
Both companies are investing in additional energy assets. Vistra has recently acquired three nuclear plants, and Constellation Energy is the IPP with the most nuclear capacity in the US. These investments are aimed at meeting the growing electricity demand, especially in the tech sector, where energy consumption is rising above average.
Goldman Sachs predicts that the AI boom will also benefit regulated utilities, albeit more limitedly. These companies could grow in volume due to increased electricity consumption and the need to expand production capacity. However, they are currently more affected by cyclical factors, such as high interest rates, than by the technological disruption of AI.
The Challenge of Energy Consumption
Generative AI has intensified the energy needs of data centers. These centers not only consume more electricity but also millions of gallons of water. The environmental impact of this technology is significant, and companies in the sector are under pressure to meet sustainability targets. Microsoft, for example, has committed to being carbon-negative and zero-waste by the end of the decade, while Google faces challenges in reducing emissions from its suppliers.
The rise of artificial intelligence is transforming the energy landscape. While Nvidia and Supermicro capture most of the attention, Vistra and Constellation Energy emerge as attractive alternatives for investors. These companies, though less known, are well-positioned to take advantage of the growing energy demand driven by AI, offering significant growth potential in the future.