According to a Department of Energy-backed study, U.S. data center power demand could nearly triple in the next three years. With the industry going through an artificial intelligence transformation, data centers could account for as much as 12% of total US electricity consumption. The Lawrence Berkeley National Laboratory report revealed that by 2028, data centers’ annual energy use could reach between 74 and 132 gigawatts. The report was produced in an attempt to understand how Big Tech’s data center demand will impact electrical grids, power bills, and the climate.
“This really signals to us where the frontier is in terms of growing energy demand in the U.S…”What this report is highlighting is what’s actually growing the fastest, and the leading edge of demand growth in the U.S. is the very new growth in artificial-intelligence data centers”.
– Avi Shultz, director of the DOE’s Industrial Efficiency and Decarbonization Office.
A McKinsey analysis reveals how the United States is expected to be the fastest-growing market for data centers, fueled by the continued increase in data, compute, connectivity from digitalization, cloud migration, as well as the scaling of new technologies, particularly AI.
A similar study by Bain & Company reveals that the global electricity demand has jumped an estimated 72% from 2019 to 2023 due to the surge in AI. The study further revealed that by 2027, demand could double 2023 levels and is expected to continue rising after 2027. The rate, however, is highly uncertain, depending on factors such as generative AI adoption, regulations, the data center supply chain’s ability to handle growth, and the commercialization of emerging energy technologies.
With the need for energy growing rapidly, the power ecosystem is grappling with many challenges at the same time. From reliable power sources, sustainability of power, and upstream infrastructure for power access, to power equipment within data centers, many issues must be addressed before it can have its power needs satisfied. According to a McKinsey study, the time to get new power connections for data center sites in major data center hubs such as Northern Virginia; Santa Clara, California; and Phoenix has been increasing. So much so that locations outside of the United States have placed moratoriums on many new data center builds primarily because they lack the power infrastructure to support them. As such, meeting these needs is highly important to fully realize the potential of artificial intelligence.
For this article, we selected AI stocks by going through news articles, stock analysis, and press releases. These stocks are also popular among hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Lumen Technologies, Inc. (NYSE:LUMN) is a technology and communications company that provides communications services to businesses and consumers. On December 19, Citi issued a Neutral rating on Lumen, citing how the company is working with two investment banks to explore strategic options for its fiber assets. This initiative aims to monetize these assets, reduce financial leverage, and extend the company’s cash runway. The company’s fiber assets are important for supporting AI workloads, providing high-speed, low-latency data transmission.
Pegasystems Inc. (NASDAQ:PEGA) develops, markets, licenses, hosts, and supports enterprise software. On December 23, Loop Capital raised the firm’s price target on Pegasystems to $115 from $90 and kept a “Buy” rating on the shares. The rating, part of a broader research note fine-tuning estimates on select Software names, was issued after inputs from company management, field personnel, and potential buyers. The analysis anticipates software vendors to report in line to slightly better-than-expected December prints. Particularly for Pega, the firm noted that a higher price target reflects go-to-market changes, growing interest in the GenAI Blueprint solution, and positive engagements with clients from the favorable appellate court ruling. In July 2024, the Virginia Court of Appeals overturned a preceding $2 billion verdict against Pegasystems in a trade secrets lawsuit filed by Appian Corporation, which positively influenced the company’s business engagements.
Palantir Technologies Inc. (NASDAQ:PLTR) is a leading provider of artificial intelligence systems. On December 22, The Financial Times reported that Palantir and Anduril are engaged in discussions with a dozen other competitors to form a consortium to bid jointly for US government contracts. The consortium, which could announce agreements with other tech groups as early as January, is expected to include SpaceX, OpenAI, autonomous shipbuilder Saronic, and artificial intelligence data group Scale AI, the publication reported, citing several people with knowledge of the matter.
“We are working together to provide a new generation of defence contractors”.
Elastic N.V. (NYSE:ESTC) is a search AI company offering cloud-based solutions. On December 21, Morgan Stanley said that GenAI’s Momentum could lift two stocks higher. One of them is Elastic N.V. The firm is bullish on Elastic, citing that the company is well-positioned to as enterprises adopt GenAI and vector search to modernize workloads. Here are analyst Sanjit Singh’s comments for the company:
“We believe Elastic’s search end market is poised to accelerate as enterprises modernize their existing search workloads with the use of GenAI and vector search technology, which will enable a natural language search experience that will be more engaging and more relevant for end users. At a minimum, we think Elastic is well positioned to sustain market share, resulting in our upside to current consensus, given a supportive technology cycle driven by generative AI, our positive customers checks, our proprietary GitHub analysis, and a top-down market share analysis”.
Lam Research Corporation (NASDAQ:LRCX) is a semiconductor stock that offers semiconductor equipment and services used in the making of integrated circuits. The company has been leveraging artificial intelligence to revolutionize semiconductor manufacturing, particularly its Equipment Intelligence® solutions. These EI solutions leverage AI and data analytics to make semiconductor manufacturing equipment smarter, faster, and more efficient. As we head into next year, several analysts are betting big on semiconductor stocks, one of which is Lam Research. Bank of America analyst Vivek Arya, in particular, anticipates substantial tailwinds for flash-memory equipment leader Lam Research as capital expenditures recover. However, there is a near-term risk of China’s export restrictions.
Constellation Energy Corporation (NASDAQ:CEG) is an energy provider specializing in clean, carbon-free energy solutions. Constellation has been one of those stocks that have surged in 2024 as investors have begun to realize the significance of independent power producers’ nuclear and gas assets in powering artificial intelligence. The stock has nearly doubled this year, making it the 10th best-performing stock just behind Broadcom. Shahriar Pourreza, head of power and utilities at Guggenheim Securities, quotes how the rally has only begun, and that investors haven’t even started to “scratch the surface of how much power demand is going to come” from the tech companies boosting their artificial intelligence endeavors. Constellation, in particular, made it strong this year through its landmark deal to restart the Three Mile Island nuclear plant in Pennsylvania and a deal with Microsoft in September.
Tesla, Inc. (NASDAQ:TSLA) is an automotive and clean energy company that leverages advanced artificial intelligence in its autonomous driving technology and robotics initiatives. On December 23, Barclays kept an “Equal-Weight” rating on Tesla with a $270 price target. The firm expects Tesla to report Q4 deliveries of 515,000 units, up 6% year-over-year and slightly above the consensus estimate of 511,000. The analyst also told investors in a research note that a beat could keep the momentum strong, but the company’s fundamentals are a secondary focus. Moreover, a slight near-term volume miss “would likely do little to dampen” the company’s focus on autonomous vehicles and artificial intelligence, particularly with the anticipated 2025 launch of “Unsupervised FSD”. Tesla’s Full Self-Driving (FSD) is expected to reach unsupervised status as early as 2025, allowing vehicles to operate without human oversight. Similarly, the firm noted that a slight beat in Q4 is also insignificant to Tesla’s bull case.
Broadcom Inc. (NASDAQ:AVGO) is a technology company known for its custom chip offerings and networking assets. On December 20, Morgan Stanley analyst Joseph Moore raised the firm’s price target on Broadcom (AVGO) to $265 from $233 and kept an “Overweight” rating on the shares. The firm is quite optimistic about the semiconductor industry as artificial intelligence continues to dominate market trends. The firm noted how “other areas are bottoming out slowly; AI strength now dominates the index weightings”. In particular, the analysts have highlighted Broadcom’s growing customer base and potential for Ethernet expansion in artificial intelligence. Ethernet is a dominant networking technology featuring the lowest job completion time (JCT) for AI training and inference. It can link over a million AI accelerators essential for scaling AI networks.
Apple Inc. (NASDAQ:AAPL) is a technology company that makes personal computers, mobile devices, and software. Its recent innovation is Apple Intelligence, Apple’s AI-driven personal system. Apple Intelligence uses AI to summarize and group notifications. Recently, the company’s AI feature came under fire when it generated a false headline under BBC News about a high-profile murder in the United States. The news claimed that Luigi Mangionse, the man who was arrested following the murder of healthcare insurance CEO Brian Thompson in New York, had shot himself, even though he had not. In response, BBC has complained to the company “to raise this concern and fix the problem”.
“BBC News is the most trusted news media in the world. It is essential to us that our audiences can trust any information or journalism published in our name and that includes notifications”.
Meta Platforms Inc (NASDAQ:META) is a global technology company. On December 23, Rosenblatt analysts named Meta Platforms as one of the top stock picks for the first half of 2025. The firm said that the firm had an “impressive and durable AI-driven growth renaissance”. Meta Platforms has experienced a 22 percent increase in revenue during the first nine months of the year. AI-led innovations in advertising, daily user engagement, and campaign effectiveness are largely responsible for the growth. The firm further stated that adjusted EBITDA margins will grow to 62.6% in 2025. This is based on a 29x multiple of 2025E EPS, the firm said.
While we acknowledge the potential of META as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
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