The AI Boom Has a Serious Problem

AI & The Energy Bottleneck: Six Stocks to Watch

Key Concepts:

• AI Infrastructure Bottleneck: The primary limitation to AI growth is not chip availability, but sufficient energy supply to power data centers.
• SMR (Small Modular Reactor): Nuclear reactors with a smaller footprint and faster deployment time, offering a potential solution to energy demands.
• Grid Instability: The risk of power outages as the existing power grid struggles to meet increasing demand.
• Backlog: The total value of orders a company has yet to fulfill, indicating future revenue potential.
• Force Buying: The automatic purchase of a stock by ETFs and institutions due to its inclusion in an index (like MSCI).
• Daisy-Chaining (SMR context): Connecting multiple SMR units to increase efficiency and power output.

I. The Looming Energy Crisis for AI

The rapid expansion of Artificial Intelligence (AI) is facing a critical hurdle: energy. While semiconductor stocks (like Nvidia) receive significant attention, the fundamental requirement of power to operate these chips is becoming the primary bottleneck. The US power grid is currently inadequate, requiring 5-6 years of substantial repairs to meet future demands. As data center energy consumption increases, grid instability and potential power outages are becoming a real threat. Without sufficient power, AI growth will be severely hampered. The core issue isn’t a lack of chips, but a lack of electrons.

II. Stock #1: GenerRack (GNRC) – The AI-Fueled Generator Play

GenerRack, known for its home and business generators, is pivoting to produce generators specifically for AI data centers. Despite a recent earnings miss, the stock rose 18-20% on the announcement of this new focus. The company projects 30% growth in the commercial/industrial sector (driven by AI) by 2026. GenerRack benefits from both the AI buildout and its existing legacy business (hurricane season demand).

• Risk Factors: The speculative nature of the AI pivot, lack of concrete earnings to support future growth projections.
• Potential Payoff: Entry points in Q1/Q2 2024, with potential price movement if the company stays on track and delivers on its 2026 guidance.
• Quote: “They are starting to build a backlog and they’re guiding 30% growth…in this particular segment.” – Jeffrey Neil Johnson

III. Stock #2: FAI Aviation (FAI) – Repurposing Jet Engines for Power

FAI Aviation, a top-end company soon to be included in the MSCI index (triggering potential “force buying”), traditionally retrofits jet engines for airlines. Now, they are repurposing these engines to generate power for AI infrastructure. This demonstrates the urgency to find alternative energy solutions.

• Timeline: Power plants built from repurposed jet engines could be operational by the end of 2026, leveraging a partnership with CFM International.
• Quote: “This tells you how desperate this infrastructure play is to actually succeed.” – Jeffrey Neil Johnson

IV. Stock #3: Bloom Energy (BE) – Rapid Power Connection

Bloom Energy offers a solution to the lengthy grid connection process (3-5 years). They can deploy a hybrid power system and connect data centers to power in just 55 days. Their “Bloom Boxes” can run on natural gas and are adaptable to alternative fuels like clean hydrogen.

• Growth & Valuation: The stock has seen a 500%+ increase in the past year, but recent growth has slowed (11% in the last 3 months) due to valuation concerns.
• Investment Strategy: A “ledge” strategy – buying small amounts during market dips – is recommended.
• Quote: “Speed is the only thing that matters…and that is the speed that you can get power.” – Jeffrey Neil Johnson

V. Stock #4: GE Vernova (GEV) – The Turbine & Transformer Provider

GE Vernova manufactures gas turbines and, recently acquired ProLEC, the largest provider of transformers. They are experiencing a 77% increase in gas turbine orders with an $83 billion backlog. The acquisition of ProLEC positions them to benefit from grid repair and expansion.

• Financials: $150 billion backlog, 77% order increase year-over-year, doubled dividend.
• Quote: “Their revenue visibility is there for for quite a while right now.” – Jeffrey Neil Johnson

VI. Stock #5: NuScale Power (SMR) – The Nuclear Solution

NuScale Power is the only company with a Nuclear Regulatory Commission-approved Small Modular Reactor (SMR) design. They have secured contracts with TVA and Oak Ridge National Laboratory (ORNL) for 12 units. ORNL is exploring “daisy-chaining” SMRs to increase efficiency.

• Challenges: Negative analyst sentiment has driven down the stock price despite a strong balance sheet ($753 million in cash, zero debt).
• Potential: If the market re-evaluates the stock as an AI infrastructure play rather than a Bitcoin-related investment, the valuation gap could close.

VII. Stock #6: IRAN (IEN) – Repurposing Crypto Mining Infrastructure

IRAN (formerly known as Marathon Digital Holdings) is a cryptocurrency mining company with existing data center infrastructure and grid connections. They are now pivoting to host AI workloads, securing a $3.6 billion investment from JP Morgan and $9 billion in commitments from Microsoft.

• Volatility: The stock has been volatile due to its connection to Bitcoin’s price fluctuations and a recent earnings miss related to the pivot.
• Catalysts: JP Morgan and Microsoft investments, the construction of a 1.6 gigawatt campus in Oklahoma to diversify away from the Texas power grid.
• Quote: “The thesis for this is as more and more analysts and more and more models start to price this stock as an AI infrastructure stock and stop pricing this stock as a Bitcoin mining stock, you might see the valuation gap close very quickly.” – Jeffrey Neil Johnson

Data & Statistics:

• US Power Grid Repair: Requires 5-6 years of substantial repairs.
• GenerRack 2026 Growth Projection: 30% growth in the commercial/industrial sector.
• FAI Aviation Stock Performance: Up 11% this month, 77% in the last 3 months.
• Bloom Energy Stock Performance: Up 500%+ in the last year, 11% in the last 3 months.
• GE Vernova Backlog: $150 billion, 77% increase in orders year-over-year.
• NuScale Power Contracts: 12 SMR units sold to TVA and ORNL.
• IRAN Investment: $3.6 billion from JP Morgan, $9 billion in commitments from Microsoft.

Conclusion:

The AI boom is undeniably dependent on a massive increase in energy production and infrastructure. The six stocks highlighted represent diverse approaches to addressing this challenge, ranging from established players like GE Vernova to more speculative bets like GenerRack and NuScale. While risks exist with each investment, the underlying demand for energy to power AI presents a significant long-term opportunity. Investors should carefully consider their risk tolerance and investment horizon when evaluating these options.