One Industry Is Quietly Fueling the AI Revolution
Editor's note: Don't ignore this corner of the AI market...
The AI boom has led to an influx of new investors in the technology space, seeking huge returns from the next big innovation in this revolutionary technology.
But according to Joel Litman – chief investment officer for our corporate affiliate Altimetry – this AI craze is a huge boon for one specific group of stocks that's overlooked by most investors right now.
In today's Masters Series, originally from the January 29 issue of the free Altimetry Daily Authority e-letter, Joel details how the AI boom is creating a massive opportunity for a particular group of companies...
One Industry Is Quietly Fueling the AI Revolution
Fayetteville, Georgia is at the center of an ongoing controversy...
A massive wave of data centers, developed by digital-infrastructure leader QTS Realty Trust and backed by financial giant Blackstone (BX), is transforming the town.
They're devouring electricity at an unprecedented rate... And energy companies are scrambling to keep up with demand.
New power lines are popping up all over, cutting across neighborhoods and sparking frustration among residents.
And this isn't just a problem in Fayetteville... It's happening all across the country, as the artificial-intelligence ("AI") revolution plays out.
AI workloads, for things like cloud services and large-language models (think ChatGPT), need lots of energy... and that requires lots of data centers. In fact, global demand for data centers could more than triple by 2030.
So this issue won't go away anytime soon.
And as we'll explain today, one group of companies stands to benefit most from the surge in power demand.
Energy demand is exploding, and today's infrastructure just isn't keeping up...
Fayetteville's new data center will use as much electricity as more than 1 million homes. That's a huge number... No town is ready to supply this much extra power.
That's why energy companies are rushing to expand... They're putting up high-voltage lines and upgrading infrastructure to handle the load.
For local communities, this isn't great news. Property values are at risk and landscapes are changing. Utility companies are even asking homeowners to give up land for new power lines.
Yet, while residents push back, power companies are cashing in.
That's because more data centers mean a steady, growing demand for power... and higher profits for energy companies.
In other words, no matter how this infrastructure gets built – whether above ground or below – one thing's for sure... Power companies will make a killing.
The Southern Company (SO) is one potential winner in this crazy energy landscape...
In the U.S. South, especially in Georgia, Southern Company is the go-to power provider...
The company generates, sells, and distributes electricity and natural gas to about 9 million residential and commercial customers.
However, despite skyrocketing energy demand, the company hasn't attracted many investors. We can see this by looking at Southern Company's Uniform price-to-book (P/B) ratio...
The Uniform P/B ratio compares a company's total value with the value of the assets on its balance sheet (or "book"). The higher the P/B ratio, the more investors are willing to pay for its assets.
Said another way, it measures how valuable investors think the company's assets are.
Southern Company's Uniform P/B ratio has been mostly flat for the past six years, at around 1.3 times. Take a look...
As you can see, the company's current valuation still sits at pre-AI levels. (ChatGPT's release in 2022 was a watershed moment for AI – arguably the start of this tech boom.)
Simply put, the market doesn't fully appreciate AI's potential, its impact on energy demand, and how Southern Company stands to benefit.
Yet AI is clearly a game changer...
This technology is reshaping entire industries and daily lives. However, AI's massive energy needs often go unnoticed by investors.
Understandably, they're more focused on AI stocks than the logistics of data centers.
Yet data centers are expanding, meaning utilities like Southern Company will see soaring power demand. And more power means more profits.
This is a key part of the AI revolution. And it's similar to what we saw during the Internet boom of the 1990s.
However, this opportunity in AI could be even bigger... because of sweeping changes taking over the federal government as we speak.
Back in April, the White House issued Executive Order 14270. It's targeted at deregulating the energy industry. And it goes into effect on September 30.
When that happens, a wave of investment will come crashing into the energy industry... sending select stocks through the roof.
Right now, investors haven't fully realized the strength of the AI trend... We can see that, in part, through Southern Company's stagnant valuation.
Soon, however, the massive energy demand for AI will be impossible to ignore. That's why investors should get in now... before the market catches on.
Regards,
Joel Litman
Editor's note: The Altimetry team has been following Trump's deregulation agenda closely. The president just released an action plan that aims to ramp up America's efforts in the AI race. And when Executive Order 14270 goes into effect, these tailwinds could usher in the next AI boom...
According to Rob Spivey – Altimetry's director of research – investors who are prepared could triple their money as this shift plays out. So he just hosted an online presentation to detail how you can profit from this new development. Click here to catch up on the full details...