The proliferation of artificial intelligence (AI) has increased demand for more powerful chips deployed in data centers to train complex large language models (LLMs), as well as bring those models into production through AI inference.
However, clustering multiple powerful chips that consume a lot of electricity and generate a lot of heat also means that data centers now have to tackle two new challenges. The first is to find a way to reduce electricity consumption. Market research firm IDC expects energy consumption in AI data centers to increase at an incredible compound annual growth rate of 45% through 2027.
The company predicts that total data center electricity consumption could more than double between 2023 and 2028. Goldman Sachs predicts that power demand in data centers could grow by 160% by 2030, indicating that data center operators will have to spend a lot of money on electricity.
The second problem that AI data centers create is that of higher heat development. When multiple high-power consumption chips are deployed in AI server racks, it is inevitable that they will produce a lot of heat. Not surprisingly, there are concerns that AI data centers could have a negative impact on the climate and put more strain on the electricity grid.
However, there are two companies that want to solve these challenges: Nvidia (NASDAQ: NVDA) And Super microcomputer (NASDAQ:SMCI) — and see how their products can make a big leap in adoption to address the problem of increasing heat and electricity generation in data centers.
1. Nvidia
Nvidia’s graphics processing units (GPUs) are the chips of choice for AI training and inference. This is evident from the company’s more than 85% market share in the AI ​​chip market. Nvidia’s chips have been used to train popular AI models such as OpenAI’s ChatGPT and MetaplatformsLlama and cloud service providers are increasingly looking to get their hands on the company’s offering to train even larger models.
One reason why that’s happening is because Nvidia’s AI chips are getting more powerful with each generation. For example, the chip giant points out that its upcoming Blackwell AI processors will allow organizations to “build and run real-time generative AI on large language models with trillions of parameters, at up to 25x less cost and energy consumption than its predecessor.”
More importantly, this remarkable reduction in energy consumption is accompanied by a 30 times increase in performance. So not only can AI models now be trained and deployed much faster using Nvidia’s chips, but the same can now be done with much less power consumption. Nvidia, for example, points out that its Blackwell processors can train OpenAI’s GPT-4 LLM using just 3 gigawatts of power, compared to as much as 5,500 gigawatts that would have been needed a decade ago.
As such, it won’t be surprising to see Nvidia maintain its lead in the AI ​​chip market as its processors are likely to be in high demand due to their cost and performance benefits. That’s why analysts at Japanese investment bank Mizuho predict that Nvidia’s revenue will exceed $200 billion by 2027 (coinciding with fiscal year 2026).
That would be more than triple the company’s fiscal 2024 revenue of $61 billion. More importantly, Mizuho’s forecast indicates that Nvidia could easily surpass Wall Street’s estimates of $178 billion in revenue for the 2026 fiscal year. As a result, Nvidia stock’s impressive rise appears sustainable, which is why investors would do well to buy it while it is still trading on the market. a relatively attractive valuation.
2. Super microcomputer
Server manufacturer Supermicro has received a lot of negative press lately. From a bearish report from short seller Hindenburg Research alleging financial irregularities to a reported investigation by the Justice Department as alleged by the Wall Street Journal, investors have been panic-selling Supermicro shares. Additionally, news of a delay in the filing of the company’s annual 10-K appears to have increased bearishness.
However, investors should note that Hindenburg’s claims are likely biased, as the short seller would have an interest in seeing Supermicro fall, and it remains to be seen if their points have any credibility. Furthermore, there has been no confirmation from the Justice Department as to whether it is indeed investigating Supermicro. Of course, Supermicro has a history of “improper accounting,” which is probably why investors have panicked.
But at the same time, investors should keep in mind that nothing has been proven yet and there is no certainty that the company is under investigation by the Department of Justice. What is worth mentioning, however, is that Supermicro has addressed the problem of higher heat generation in AI data centers with its liquid-cooled server solutions.
The stock fell significantly on October 7 after it announced that it has shipped more than 2,000 liquid-cooled server racks since June. Additionally, Supermicro points out that more than 100,000 GPUs will be deployed using its liquid cooling solutions every quarter. The company claims that its direct liquid-cooled server solutions can help achieve up to 40% energy savings and 80% space savings, which likely explains why its server racks are witnessing solid demand.
In fact, Supermicro management pointed out last year that it can deliver 5,000 liquid-cooled server racks per month, and it won’t be surprising if capacity utilization soars as data center operators look to reduce costs and energy consumption. After all, Supermicro says the potential “40% power reduction allows you to deploy more AI servers in a fixed power range to increase computing power and reduce LLM training time, which is critical for these large CSPs and AI factories.”
Meanwhile, total demand for liquid-cooled data centers is expected to grow by more than 24% annually through 2033, generating annual revenues of nearly $40 billion in 2033, up from $4.45 billion last year. Supermicro has already been growing at an impressive pace and this new opportunity, which comes from increased heat and electricity generation in data centers, could give the company additional impetus.
Naturally, investors would be looking for more clarity on the company’s operations following the recent developments, but one should not forget that Supermicro’s profits are expected to grow 62% annually over the next five years. So, this AI stock should be on the radar of investors looking to make the most of the opportunities presented by the AI-related challenges discussed in this article.
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Artificial Intelligence (AI) Energy Consumption Is Rising at a Frightening Rate: Two Stocks That Could Rise on This Trend was originally published by The Motley Fool
