The Growth Opportunities Hidden in Today's AI Boom

In the 2001 film Ocean's Eleven, Danny Ocean cut the power along the Las Vegas Strip to pull off the perfect heist.

The casinos darkened. The security systems shut down. And for 30 seconds, the lights went out in a city that never sleeps.

Now, it looks like the lights could go out in Vegas again.

But this time, there'll be no elaborate plan. No Danny Ocean. No crew in matching suits.

This time, it'll be simple economics...

The Vegas Strip houses some of the most energy-intensive commercial buildings in the world. The fountains alone at the Bellagio Resort & Casino use enough power for 1,500 homes.

On hot summer nights, Vegas draws more than 6,000 megawatts – higher than the demand of many small nations.

But beyond the city's glow, Nevada's electricity demand is about to explode. And the companies that supply the electric grid's "industrial plumbing" could soon triple their revenues...

Look for Companies Filling in the Gaps

Nevada's data centers are already putting a strain on its electric grid...

Just consider the Tahoe-Reno Industrial Center in western Nevada – a massive industrial park, home to companies like Tesla, Google, and data-center company Switch.

It's part of the Reno metro area... which needs 6 gigawatts of electricity within the next decade.

But this demand will only grow.

In June 2024, Denver-based Tract committed $100 billion to build new data centers across Storey County in western Nevada over the next decade – a bet bigger than the entire GDP of most countries.

And Doug Cannon, former CEO of Nevada electricity provider NV Energy, sees it too. He's predicting that data centers could "double, triple, even quadruple the size of the total electric grid in northern Nevada" in the coming years.

This massive hunger for energy isn't limited to Nevada...

We're seeing more and more corporate megadeals between hyperscalers, chipmakers, and AI developers. That's why the U.S. is building data centers at a breakneck pace.

As investors, we can follow the constraints of new booms to uncover stocks with massive potential. And today, the limiting factor in the AI boom isn't money, land, or ambition.

It's hardware...

You see, every new data center needs the same components: high-voltage transformers, custom switchgear, liquid-cooling systems, and backup turbines.

They're the least glamorous parts of the modern economy... But they've suddenly become the most powerful. And they're in short supply.

That means the companies that make this equipment now hold pricing power not seen in decades.

The Infrastructure Crunch Is Already Underway 

The numbers tell a story Wall Street is just beginning to understand...

Costs are soaring. Last year, NV Energy announced the cost of its planned Greenlink transmission project – a 350-mile transmission line running across Nevada – would jump 68% to $4.2 billion. 

And wait times are growing, too...

According to industry data from Wood Mackenzie and the National Electrical Manufacturers Association, transformer lead times have exploded. What used to take four to six weeks before 2020 now takes three years.

Meanwhile, getting cooling systems on line in Nevada and Arizona can take more than 24 months for some units.

In short, the cost equation has fundamentally changed. Building data-center capacity now costs $8 million to $12 million per megawatt – up from between $6 million and $8 million a decade ago. In premium markets, that figure hits $15 million.

And here's the kicker: Cushman & Wakefield reports equipment prices have surged across the board since 2021...

U.S. data centers already consume 4% of total domestic electricity. That could rise to 12% by 2028. Yet transformer output can only rise about 15% per year... because it's limited by steel shortages and the supply of skilled labor.

Picks and Shovels of the AI Gold Rush

Remember Danny Ocean cutting the power to pull off his heist? Today's data centers face the same vulnerability.

Without the energy and infrastructure they need to run, the entire AI boom goes dark.

Three companies control the switch...

Eaton (ETN) makes electrical equipment and power-management solutions for data centers. It boasts an $11.4 billion backlog, 38% gross margins, and three-year wait times. With those numbers, a huge swath of the major data centers being built today will get their power distribution from Eaton.

Vertiv (VRT) provides the air conditioning. Without it, the whole data center overheats and shuts down. Vertiv's $8.5 billion backlog is greater than its entire annual revenue. That's a tollbooth on the AI highway.

Modine Manufacturing (MOD) provides liquid cooling – crucial for AI chips that run hotter than Vegas in July. The company is still only worth $8 billion... But it's in prime position to profit from hundreds of billions of dollars' worth of data-center build-out.

Ocean's crew had 30 seconds of darkness to rob the casinos... But today's data centers can't afford 30 milliseconds of downtime.

That's why they'll pay any price, wait any time frame, and accept any terms these three companies offer.

These three businesses enjoy captive customers and monopoly pricing power... in an industry where crunched supply is already causing prices to soar.

In short, these companies keep the lights on for data centers. And they'll make huge profits along the way.

Good investing,

Josh Baylin

Editor's note: AI is making people rich in ways that used to be impossible... Everywhere you look, the "AI winners" are pulling away and leaving the rest behind. According to our colleague Whitney Tilson, what you choose to do today could define your financial life for the next decade or more. And thanks to a breakthrough way of using AI, you can find yourself on the winning side of this divide.