Around the U.S., new data centers are sprouting up like weeds.
These data centers feed fast-growing demand for AI products and services.
We have plentiful access to the NVIDIA chips which power cutting-edge AI applications.
The bottleneck is now power generation. There’s not nearly enough juice to go around.
For example, Elon Musk’s xAI recently built their massive Colossus data center near Memphis, Tennessee.
The complex was built inside an abandoned Electrolux washing machine factory. But the local power grid couldn’t support its hungry AI servers.
So xAI had to bring in a fleet of portable natural gas turbines and create its own power.
Next month, xAI will start construction on a 500 acre solar farm near its Colossus complex. It will store some of this solar power in Tesla Megapacks, which are industrial-scale batteries, so that it can be utilized during the night as well.
Extreme Measures
Elon’s xAI is even planning to buy and ship an entire power plant from overseas to Tennessee to feed its hungry servers.
As reported by local Memphis TV station Action 5 News:
The world’s richest man confirmed he’s shipping an entire power plant across the globe to Memphis.
Elon Musk says it takes too long to build a facility in the U.S., so he’s fast-tracking the project to power up his supercomputer in the Bluff City. But, there are concerns being raised about such a rare rush job.
Musk is kicking his xAI project into high gear as the selection of the person who will lead the air permitting process for this new power plant stalls out.
The new power generation operation will reportedly be a 2 gigawatt natural gas turbine plant. This shows the extreme measures that people are being forced to go to in order to supply new data centers with power.
It’s not just xAI that’s getting creative to power data centers. Microsoft is planning to restart Three Mile Island nuclear reactors. Google, Amazon and others are planning a combination of small nuclear reactors, natural gas, wind, solar, hydroelectric, and batteries to power their new projects.
Delays & Cost Increases
The most logical way to solve our power problems quickly would be natural gas. The problem is, current wait times for natural gas turbines in the U.S. have risen to 5-7 years. Deliveries of transformers required for substations currently take around 3-5 years.
Additionally, we haven’t built as many gas pipelines as we should have over the past 40 years due to red tape and regulations. Fortunately Trump has solved many of these issues, but we can’t get those 40 years of lost time back.
Nuclear might be a solution long-term, but it currently takes at least 20 years to plan, permit, and construct a nuclear plant in the U.S.
As a result of 40 years of under-investment in our power grid, U.S. electricity costs are soaring. See the chart below by ZeroHedge.
Is Re-Shoring Realistic Today?
Given the sharp increases in electricity costs, which are only likely to continue increasing, are we supposed to now expect companies to shift manufacturing back to the United States?
I hate to be a downer, but this simply isn’t realistic. We need to solve this power crisis before we demand firms bring manufacturing back to the United States.
If we force companies like Apple to bring all their manufacturing back to America today, they would be forced to pay high utility rates which could make their products uncompetitive with those produced in China and elsewhere.
Say what you want about China, but the country has done a remarkable job of growing their power production over the past 40 years.
This chart should light a fire under every U.S. politician and policymaker. Red alert.
We need a new Manhattan Project-scale effort to build power generation before we can properly rebuild our manufacturing base.
The American grid is already having trouble keeping up with growing demand from data centers. We can’t expect it to handle a massive influx of manufacturing plants. Sure, we can begin the process and incentivize companies to start planning for a return.
But first, we need to focus on power. President Trump has made many positive changes that will enable this growth, but it’s going to take time.
People want a quick and easy fix, but there is no such thing in the world of electricity. New projects take time to build, permit, and become operational.
Fortunately, if we do the smart thing and create a new “Manhattan Project” for power, it should create plenty of high-paying jobs. It would also lower Americans’ rising electricity costs.
The Federal government will need to continue stepping up to support generation and grid expansion.
As investors, there are going to be plenty of opportunities to play this trend. However, many of the obvious ones have already soared in value. GE Vernova, which my friend Byron King mentioned during our Jekyll Island summit in April, is up a whopping 228% over the past year. The company makes gas and wind turbines, along with other power infrastructure equipment.
However, there will be other opportunities to come. We’ll keep an eye out and let you know what we find.
