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The AI industry continues to grow rapidly. Future growth, however, isn't guaranteed. That's not because the world won't need more artificial intelligence.
Rather, scaling AI compute power will quickly encounter other growth constraints. Number one is access to capital. So far, this hasn't been much of an issue.
Markets have been keen to provide AI companies with plenty of fresh cash. That's good news considering AI technologies rely on data centers , which are capital-intensive. If capital grows scarce, industry growth rates will quickly come under pressure.
Scaling data center infrastructure, however, comes with its own growth constraints. "Capital is pouring into data center development, but there are real constraints on growth," warns McKinsey & Co. "The race to scale AI has triggered one of the largest infrastructure build-outs in modern history.
By our estimates, global spending on data centers could reach $7 trillion by 2030. Whether a build-out is successful depends on many nuances, including the availability of capital and energy resources." These are the two major challenges the AI industry will have to continually overcome to grow: access to capital and access to energy. Because energy is so critical to powering data centers -- which, in turn, are critical for enabling artificial intelligence itself -- major AI companies are making big moves to ensure they have enough energy long term.
That includes negotiating directly with energy system manufacturers and utility operators. This week, Amazon ( AMZN -0.37% ) announced a 20-year deal with Constellation ( CEG +1.93% ) for access to nuclear power. The agreement will direct $3 billion in investment to expand one of Constellation's existing nuclear facilities.
Notably, the energy production will be delivered to the grid as usual. So Amazon's partnership will add to the region's overall energy generation capacity rather than exclusively reserving the new power production for itself. Amazon's strategy makes a lot of sense.
Investing directly in nuclear power by expanding existing facilities is cost effective. And, more power production regionally helps the company minimize price increases as a result of its rising energy needs. Constellation, of course, will be a direct benefactor.
But there's one other nuclear stock that this deal should indirectly help. Premium Feature Moneyball Superscore 52 /100 Today's Change ( -1.39 %) $ -0.11 Current Price $ 7.79 I like this nuclear stock even more after Amazon's announcement What Amazon helped prove today is that AI companies are willing to go through traditional grid operators to scale regional power production. That's good news for NuScale Power ( SMR -1.39% ) , which aims to build small modular nuclear reactors for utility companies.
Image source: The Motley Fool For comparison, Oklo Inc. ( OKLO -2.38% ) is also pursuing small modular reactors. Instead of marketing its systems to utilities, however, Oklo has opted to sell directly to AI companies. In return, it has generated an impressive customer pipeline of data center operators.
Though, most of its deals are non-binding, and none of its SMR deals have yet reached commercial production. NuScale, on the other hand, has closed two sizable deals with utility operators. The first is a relatively small system in Romania.
The other -- a 6-gigawatt system in the eastern U.S. -- would be the biggest SMR facility in the world if it ever gets built . To be clear, Amazon's deal with Constellation has no direct link to NuScale. What's encouraging, however, is another proof point that AI companies aren't necessarily looking to disintermediate utility companies.
Instead, they're willing to help finance additional nuclear production to meet their needs through increased regional energy generation. That's great news for NuScale's go-to-market strategy.
Source: The Motley Fool
