Artificial intelligence (AI) has been the buzziest of buzzwords ever since ChatGPT burst on the scene in late 2022. Companies across all sectors are investing enormous sums of money to capitalize on the AI megatrend. That's driving tremendous demand for data and semiconductor chips to feed AI-enabled applications.
However, one trend that hasn't yet caught the attention of most investors is that AI needs an immense amount of power, particularly green power. That has the potential to power robust growth for renewable-energy producers and developers like Brookfield Renewable (BEPC +0.00%)(BEP 2.11%). The company's management team highlighted this emerging demand driver for clean power on the fourth-quarter conference call.
NYSE: BEPC
Key Data Points
Adding an accelerant
There's an arms race in the technology sector. "Over the last 12 months," stated Stephen Gallagher, CEO of Brookfield Renewable's U.S. operations, "the race to increase computing power has been illustrated by the increase in demand for certain inputs such as computer chips." Companies need these high-powered chips made by Nvidia and others to run their AI-enabled tools. The surge in chip demand has sent semiconductor stocks soaring while also driving robust growth for leading cloud-computing companies.
However, chips aren't the only thing that these companies need. They also require a lot of power to run the data centers housing the servers and other technology needed to operate cloud networks and AI-enabled tools. Gallagher commented, "We believe most investors have yet to grasp the importance of a secure energy source in enabling the delivery of the data center and computing power growth." Many investors don't realize that the largest cloud providers have committed to running 100% of their business on clean energy. That's driving robust consumption growth (50% annually) as they race to hit their targets.
Their already insatiable demand for clean power will only grow stronger in the future. That's because "the highly power-intensive nature of AI is acting as a multiplier on energy demand," according to Gallagher. "For example," he stated, "the integration of AI uses up to 10 times more power when integrated into a typical search process." Because of that, power is "increasingly becoming a key bottleneck for growth of cloud computing."
Gallagher highlighted on the call that "It is widely estimated that global electricity consumption from data centers will increase to approximately 10% of total electricity demand by 2030, up from approximately 2% today." That's an enormous amount of new capacity needed. He noted:
To put this in context, this means that to satisfy the needs of data centers alone, which does not factor in the penetration of EVs or broader electrification, additional generation capacity will be required equivalent to the size of the current U.S. grid.
A powerful growth driver
Brookfield Renewable is in an excellent position to capitalize on technology companies' enormous need for clean energy to run their data centers and operations. The company already counts many of the top tech titans as its largest corporate customers. It works with many of them to meet their needs for clean energy to power their operations.
For example, in 2022, Brookfield Renewable agreed to provide Amazon (AMZN 0.89%) with over 600 megawatts of clean wind and solar power for its operations in Europe, North America, and India. That deal helped Amazon stay on its path to power 100% of its operations with renewable energy by the end of next year. It continued their long-standing partnership in which Brookfield helped develop renewable-energy projects to meet Amazon's power needs.
The company currently has almost 24 gigawatts (GW) of new renewable-energy projects in its advanced-stage development pipeline. That's almost as big as its current operating portfolio (33 GW) and part of its larger 155 GW development pipeline. The company has been rapidly moving projects to its advanced-stage pipeline by securing commercial contracts with large corporate power buyers.
Those development projects are one of several factors driving the company's expectations that it can grow its funds from operations (FFO) by more than 10% per year. Brookfield estimates that its advanced-stage pipeline alone could add about $300 million of annual FFO to its bottom line per year as those projects enter service in the coming years (implying nearly 30% growth from last year's level). That rapidly rising FFO will give Brookfield the power to continue increasing its dividend (which currently yields 5.2%).
Adding an accelerant to an already powerful trend
AI needs two things to thrive: computing power and energy. That should drive accelerated demand for renewable energy since most leading tech companies have made clean-power pledges. This trend will benefit Brookfield Renewable, which has been working closely with tech titans to support their clean-energy goals. It should enable the company to grow briskly in the future, giving it more power to increase its already attractive dividend. Those two factors could fuel double-digit total annual returns for its shareholders. That makes it a great stock to buy for those seeking to cash in on the AI megatrend.
