Nvidia’s shares have surged over 10% following its latest earnings report after beating investor expectations and showcasing the high demand for its artificial intelligence chips. The company’s data center revenue saw a staggering 427% increase during the quarter. While Nvidia benefits from the AI growth, other areas of the economy such as commodities and electric utilities are struggling to keep up with the expansion.
The demand for Nvidia’s graphic processing units is primarily driven by major cloud service providers like Amazon Web Services, Microsoft Azure, Google Cloud, and Oracle Cloud. These clients accounted for around 45% of Nvidia’s $22.56 billion in data center sales in Q1 of 2024. The data centers are in an AI arms race, with major investments being made in new data centers by these cloud giants. Global data center capital expenditure is expected to rise from $300 billion in 2024 to over $500 billion by 2027.
Data centers are major electricity consumers, and the availability of power is becoming a bottleneck for their global expansion. Current electrical grids are aging and inefficient, unable to scale to meet the growing demand. Electricity consumption from data centers and AI is expected to double by 2026, with the International Energy Agency predicting it to reach over 1,000 TWh. The growth in demand is equivalent to Japan’s current electricity consumption.
Utilities are expected to step up to meet the growing need for electricity. Many U.S. electric utilities have identified data centers as a primary source of customer growth, leading them to increase forecasts for capital expenditure plans. Companies like Eaton, which provide infrastructure solutions for utilities, are benefiting from the increased investment. With the expansion of the grid, there is also an increased demand for natural gas to power the utilities, with renewables expected to provide 40% of the power demand growth.
The exponential growth of AI computing is leading to a greater need for critical metals like copper. The potential incremental copper demand from the U.S. data center buildout could range between 0.5% to 1.5% of global copper demand, impacting the market significantly. Copper prices have already soared by 22% in the last three months due to the imbalance between supply and demand. There are challenges in sourcing critical metals like copper due to issues like aging mines, lack of exploration success, and political risks in key producing regions.
In conclusion, the growth of AI technology is driving demand for more data centers, leading to increased electricity consumption, and a need for critical metals like copper. Nvidia’s strong earnings reflect the robust growth of AI, while stressing the infrastructure supporting this growth. As the demand for AI continues to rise, the strain on commodities like copper and natural gas, as well as utilities, will only increase. These sectors are experiencing significant growth but are also facing challenges in meeting the growing demand.
