Power demand driving next phase of AI boom

Key Concepts

• AI Infrastructure Build-out: The shift in investment focus from semiconductors to the physical infrastructure (power, cooling, storage) required to support AI data centers.
• Liquid Cooling: A thermal management technology essential for high-density AI chips (e.g., Vera Rubin generation) that are too hot for traditional air cooling.
• Power Bottleneck: The supply-demand gap in electricity generation, with data centers driving a massive increase in demand.
• Energy Storage Systems (ESS): Technologies required to manage and stabilize power supply for data centers.
• Labor Availability Gap: A critical industry headwind involving a shortage of skilled labor required to construct and maintain complex data center infrastructure.

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1. The Industrial Sector and the AI Narrative

Evelyn Cho (Neuberger Berman) argues that the AI investment story has evolved beyond mega-cap tech and semiconductors into the "infrastructure story." Industrial companies—specifically those in electrical equipment—are currently among the best performers in global indices. This growth is driven by a combination of cyclical uplift and the physical requirements of AI data centers.

2. Key Investment Picks

Cho highlights three companies addressing specific constraints in the AI ecosystem:

• nVent Electric (NVT): Solving Heat
  • Role: A leader in liquid cooling technology.
  • Technical Detail: Liquid cooling is currently used in 15–30% of AI deployments, a figure that increases significantly for cluster deployments. It is more efficient than air cooling for high-density chips like the Vera Rubin generation.
  • Financials: Targeting 20%+ earnings compounding with mid-teens organic growth.
• GE Vernova (GEV): Solving Power
  • Role: A major player in power generation, specifically gas turbines.
  • Market Position: Holds >25% of the global gas turbine market share.
  • Financials: Boasts a $200 billion backlog through 2027, providing high visibility into growth. The company benefits from high Average Selling Prices (ASP) and a robust, high-margin services engine.
  • Context: Cho views the recent stock pullback as a buying opportunity, noting that while peers plan capacity additions for 2029, GEV is positioned to meet immediate demand.
• Contemporary Amperex Technology Co. Limited (CATL): Solving Energy Storage
  • Role: A leader in integrated full-stack AI data center energy storage systems.
  • Innovation: Pioneering sodium-ion batteries as a medium-term storage solution.
  • Global Reach: Demonstrates that the AI opportunity is not limited to North America; the company is successfully accessing the U.S. market through partnerships (e.g., Ford).

3. The Power Scarcity Theme

Cho identifies power scarcity as a defining investment theme for the next decade.

• Data: Transformer investment has increased by 120% over the last five years, yet capacity remains insufficient.
• Demand Shift: AI data centers are fundamentally reshaping the energy landscape, causing demand to grow after years of stagnation.
• Requirement: Estimates suggest a need for 15+ gigawatts of increased power generation annually to keep pace with data center growth.

4. Industry Headwinds: The Labor Constraint

Despite the technological advancements, Cho identifies labor availability as a primary risk.

• The Problem: Engineering and Construction (E&C) companies report a significant shortage of the highly skilled labor required to build data centers.
• Impact: This "gating factor" could limit the speed at which power and cooling infrastructure can be deployed, potentially slowing the overall AI build-out toward the end of the decade.

5. Synthesis and Conclusion

The AI build-out is transitioning from a software and chip-centric narrative to a physical infrastructure-intensive phase. Investors are increasingly looking toward "brick-and-mortar" industrial players that solve the three primary bottlenecks of AI: heat (nVent), power (GE Vernova), and storage (CATL). While these companies offer strong growth profiles and high visibility, the sector faces a significant structural challenge in the form of a skilled labor shortage, which may act as a ceiling on the pace of infrastructure expansion.