The proliferation of artificial intelligence (AI) has increased the demand for more powerful chips which can be being deployed in data centers to coach complex large language models (LLMs), and in addition for moving those models into production through AI inference.
Nonetheless, clustering together multiple powerful chips that devour a whole lot of electricity and generate a whole lot of heat also implies that data centers now have two recent challenges to tackle. The primary is to search out a solution to reduce electricity consumption. Market research firm IDC anticipates that energy consumption in AI data centers is ready to extend at an incredible compound annual growth rate of 45% through 2027.
The firm predicts that overall data center electricity consumption could greater than double between 2023 and 2028. Meanwhile, Goldman Sachs forecasts that data center power demand could grow 160% by 2030, indicating that data center operators may have to shell out a whole lot of money on electricity.
The second problem that AI data centers are creating is that of upper heat generation. When multiple chips with high power consumption figures are deployed in AI server racks, it’s inevitable for them to provide a whole lot of heat. Not surprisingly, there are concerns that AI data centers could have a negative impact on the climate and create more pressure on the electrical grid.
Nonetheless, there are two firms which can be seeking to solve these challenges — Nvidia (NASDAQ: NVDA) and Super Micro Computer (NASDAQ: SMCI) — and check how their products could witness a pleasant jump in adoption to tackle the issue of rising heat and electricity generation in data centers.
1. Nvidia
Nvidia’s graphics processing units (GPUs) have been the chips of alternative for AI training and inference. This is obvious from the corporate’s 85%-plus share of the AI chip market. Nvidia’s chips have been deployed for training popular AI models corresponding to OpenAI’s ChatGPT and Meta Platforms‘ Llama, and cloud service providers have been increasingly seeking to get their hands on the corporate’s offerings to coach even larger models.
One reason why that is happening is because Nvidia’s AI chips are getting more powerful with each passing generation. As an illustration, the chip giant points out that its upcoming Blackwell AI processors allow organizations “to construct and run real-time generative AI on trillion-parameter large language models at as much as 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, AI models can’t only be trained and deployed at a much faster pace now using Nvidia’s chips but the identical can now be done with much less power consumption. For instance, Nvidia points out that its Blackwell processors can train OpenAI’s GPT-4 LLM by consuming just 3 gigawatts of power as in comparison with a whopping 5,500 gigawatts which might have been required a decade ago.
As such, it won’t be surprising to see Nvidia sustaining its lead available in the market for AI chips as its processors are more likely to be in high demand due to the associated fee and performance benefits. That is the rationale why analysts at Japanese investment bank Mizuho are forecasting Nvidia’s revenue to surpass $200 billion in 2027 (which is able to coincide with its fiscal 12 months 2026).
That may be greater than triple the corporate’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 fiscal 2026. Consequently, Nvidia stock’s impressive surge seems sustainable, which is why investors would do well to purchase it while it continues to be trading at a comparatively attractive valuation.
2. Super Micro Computer
Server manufacturer Supermicro has received a whole lot of negative press of late. From a bearish report by short-seller Hindenburg Research alleging financial irregularities to a reported probe by the Department of Justice as claimed by the Wall Street Journal, investors have been panic-selling Supermicro stock. Moreover, the news of a delay within the filing of the corporate’s annual 10-K seems to have added to the bearishness.
Nonetheless, investors should note that Hindenburg’s allegations are more likely to be biased because the short-seller would have an interest in seeing Supermicro fall, and it stays to be seen if their points have any credibility. Moreover, there isn’t a confirmation from the Justice Department whether it is indeed probing Supermicro. In fact, Supermicro has a history of “improper accounting,” which might be why investors have been panicking.
But at the identical time, investors should note that nothing has been proven yet, neither is it certain there may be a probe by the Department of Justice into the corporate. Nonetheless, what’s price noting is that Supermicro has been addressing the problem of upper heat generation in AI data centers with its liquid-cooled server solutions.
The stock popped significantly on Oct. 7 after it announced that it has shipped over 2,000 liquid-cooled server racks since June. Moreover, Supermicro points out that greater than 100,000 GPUs are set to be deployed using its liquid cooling solutions on a quarterly basis. The corporate claims that its direct liquid-cooled server solutions can assist achieve as much as 40% energy savings and 80% space savings, which probably explains why its server racks are witnessing solid demand.
Even higher, Supermicro management identified last 12 months that it may well deliver 5,000 liquid-cooled server racks per thirty days, and it won’t be surprising to see its capability utilization heading higher as data center operators look to cut back costs and energy consumption. In spite of everything, Supermicro says that the potential “40% power reduction lets you deploy more AI servers in a set power envelope to extend computing power and reduce LLM time to coach, that are critical for these large CSPs and AI factories.”
Meanwhile, the general demand for liquid-cooled data centers is forecast to grow at an annual rate of over 24% through 2033, generating annual revenue of virtually $40 billion in 2033 as in comparison with $4.45 billion last 12 months. Supermicro has already been growing at a formidable pace and this recent opportunity attributable to the upper heat and electricity generation in data centers could give it a further boost.
In fact, investors could be on the lookout for more clarity in regards to the company’s operations following the recent developments, but one shouldn’t forget that Supermicro’s earnings are forecast to extend at an annual rate of 62% for the following five years. So, this AI stock ought to be on the radar of investors seeking to benefit from the chance presented by the AI-related challenges discussed in this text.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Goldman Sachs Group, Meta Platforms, and Nvidia. The Motley Idiot has a disclosure policy.
Artificial Intelligence (AI) Energy Consumption Is Jumping At a Scary Pace: 2 Stocks That Could Surge Due to This Trend was originally published by The Motley Idiot