AI's Power Bottleneck Is Here, Profiting Is The Hard Part

Summary The 2024 AI power trade has deflated since June. Many power suppliers and equipment makers saw their multiples compressing even as earnings and guidance rose. This is a paradox: power remains a hard bottleneck on data center buildout. If anything, the constraints are worsening, not easing. Demand forecasts for power from AI have one unreliable component: BNEF's upward revision was driven by announcements, not construction. Announcement can be withdrawn. Supply constraints on power equipment are here. Substation transformer lead times exceed 160 weeks. Skilled electricians shortages are a big bottleneck too. I see three routes to still profit from AI power trade: regulated utilities, merchant generators, and equipment suppliers selling into unregulated behind-the-meter demand. krblokhin/iStock via Getty Images In 2024, everyone was chasing the AI power trade. Certain stocks of merchant generators that sell electricity into wholesale markets (especially for AI data centers) surged, notably Vistra and Talen. Other players supplying power buildout like Bloom Energy Corporation ( This article was written by Andriy Blokhin 1.07K Followers Follow An individual investor analyzing equities based on cash flow potential, relative value and economic moat. I also write articles on ETFs with a focus on sustainable long-term total returns. I bring years of public accounting experience, economics and quantitative background to my research. In my idea generation process, I back up story-telling with quantitative analysis to pin down the upside/downside potential. Focus is on both the long/short side, although I enjoy short stories more.I am proficient in Python and use algorithms to comb through the stock market to uncover companies that the market either overhypes or ignores. While the focus is on fundamental analysis, I am also incorporating technical analysis to maximize the success rate of my ideas. I also write educational articles on different financial and accounting issues that affect companies' valuations and help investors make better and informed decisions. I am a former certified public accountant (CPA) with years of public accounting experience. My educational background is in accounting and economics. I also pursued a PhD in economics program researching sovereign debt defaults in monetary unions. After obtaining an all but dissertation status, I left the program to pursue other professional interests. My current focus is on writing on Seeking Alpha, investing and my YouTube channel (The Investing Mantic) where I create educational videos on investing and peronsal finance topics. Analyst’s Disclosure: I/we have a beneficial long position in the shares of BW either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.