Kiryll is on holidays in London for a few weeks, and I’m on the US east coast for a business trip. So we’re unable to record a regular episode of What’s Not Priced In.
But this week has unfolded largely as we anticipated last week…that is, the market is bouncing. But it hasn’t bottomed. The beginning of new hostilities in the Middle East just makes the outlook that much more uncertain.
If Iran is implicated in any way, and oil embargoes result, watch for energy prices to surge. But right now, they’re pulling back after a strong run and signs of weaker demand. The US, having run down their strategic petroleum reserve, are really in no position to be cutting supply from Iran.
So for this week, let’s stay on the topic of energy…
The AI boom is an energy boom
Artificial intelligence is all the rage. It’s the next big thing. It will change the way you work. It will create industries and destroy industries.
You’ve heard it all before.
What you probably haven’t heard so much is just how energy-hungry AI applications are. The Last Optimist podcast laid this fact out starkly in a recent episode. Host Mark Mills described how the Chief Technology Officer of AI chipmaker Techno Wizard gave a presentation at a conference in 2022, just a few months before the unveiling of ChatGPT.
He showed a graph that predicted energy consumption out to 2040 by the AI industry, using current growth trends. It showed that AI machines will consume roughly the same amount of energy that the US consumes today for ALL OTHER PURPOSES.
Read it again, and let it sink in.
The AI boom is an energy boom. And believe me, you’re not going to keep data centres running 24/7 on wind and solar.
It’s just another example of the absurdity of the Net Zero push. You simply cannot run a modern, technologically advanced economy on intermittent energy sources.
Just have a look at the recent results of data centre company NextDC [ASX:NXT].
It reported a 25% increase in revenue in FY23, an excellent rate of growth. But ‘power and consumables’ rose a whooping 91%. As a result, NXT reported a $25 million loss last financial year, down from a $9 million profit in FY22.
In a presentation explaining the results, NXT said:
‘Short term direct costs driven by significantly higher contracted energy costs for calendar 2023 (approximately 270% increase relative to calendar 2022)’
Data centres are a bona fide growth industry. And as the demand for AI machines increase, they will continue to benefit. But energy consumption will also increase markedly to run these AI chips. If costs grow as fast as revenues, it’s hardly a growth industry.
These businesses need cheap and reliable energy. But with Australia and the west’s current energy policies, we risk losing any technological edge to other ‘energy smart’ nations.
The energy U-turn is starting
Thankfully, you’re starting to see some changes emerge. In the UK, Prime Minister Rushi Sunak delayed the ban on the sale of conventional cars from 2030 to 2035. He also announced delays to the rules around replacement of gas boilers, while ruling out new taxes on meat and flying.
The left-wing media typically lost the plot over this Net Zero ‘U-turn’. But to be honest, it’s just the start. As I have said repeatedly, this is not about politics, although I concede there is a big political divide over the issue.
This is about economics. And at some point in the next few years, people will realise just how economically destructive these policies are. And they will demand change. Politicians are interested in power, not climate change. Once they sense the shift in mood, they will change too.
As I’ve been saying for a long time, the insane energy policies being thrust upon us by incompetent politicians is the driving force behind this trend.
And it begs the question, why? Why are we going down this path?
This is what I tried to get at in a recent interview I did with South Australian Senator Alex Antic. Discussing the politics behind Australia’s increasingly expensive energy transition, I asked him whether there was an agenda behind it, because it certainly doesn’t make sense economically.
If I wanted to destroy an economy, I said, I would make a country’s energy system expensive and unreliable. Which is exactly what we’re doing. So what is going on here?
Click here or on the image below to hear the Senator’s response in this special episode of What’s Not Priced In…
Editor, Money Morning