By Adam Clark
The artificial-intelligence boom is driving data centers to become ever-larger and more numerous all over the world, not just the U.S. That will require trillions of dollars in investment, and Europe's renewable energy companies might be underappreciated plays compared with U.S. energy stocks.
Power demand from European data centers is projected to rise from 96 terrawatt hours (TWh) in 2024 to 236 TWh by 2035, increasing their share of total electricity demand from 3.1% to 5.7%, according to research published Friday by commercial real estate advisory and services firm Newmark. That will lead to a need for around EUR100 billion, or $116 billion, in annual investment in Europe's electricity network over the next decade.
There are European players that could be well placed to reap the benefits of that spending. The beneficiaries are likely to reflect the greater importance of renewables in the European Union and stricter regulations as compared with the U.S.
"Renewable energy is a more critical factor in Europe versus the U.S. In the U.S. there's a lot of talk about natural gas and on-site gas generators," said David Dera, senior managing director at Newmark's location strategy consulting practice.
Analysts at UBS placed German company RWE and Danish wind-power specialist Orsted on their list of most favored European utilities stocks earlier this month, citing rising power demand from data centers as a key factor. RWE has gained 26% this year so far, while Ørsted has fallen 9.6%.
One area attracting increasing attention from data center operators in both the U.S. and Europe is nuclear energy, which has the benefit of not adding to carbon emissions while providing a constant power supply.
Countries that already have a robust network of nuclear plants could benefit by having to invest comparatively little to adapt to the demands of AI data centers. Of the EUR679 billion needed to be invested in Europe's electricity network in the period from 2021 to 2030, Newmark estimates France will account for 8% of the total, while Germany faces 26% of the cost -- largely due to the robust French transmission network designed around its nuclear plants, while the German network faces a costly transition from coal and gas to renewables.
Investors don't have much of a look in on France's nuclear power network. Its plants are run by Électricité de France, which was taken fully into government ownership in 2023. However, there is growing interest among European governments in the concept of small modular nuclear reactors, which are designed to be cheaper and more flexible.
As Barron's has previously written, GE Vernova Hitachi Nuclear Energy -- a joint venture between U.S. industrial company GE Vernova and Japanese conglomerate Hitachi -- is the leader in the nascent small modular reactor sector.
For those who prefer to stick closer to home, the investment case in the U.S. is similar. The share of electricity consumption accounted for by American data centers is expected to triple from 126 terawatt hours (TWh) in 2022 to 390 hours by 2030, according to Boston Consulting Group. The U.S. power grid could require about $720 billion in spending in total through 2030 to support that growth, Goldman Sachs forecasts.
Meta Platforms CEO Mark Zuckerberg said this week that his social-media company will invest "hundreds of billions of dollars" to build the next stage of AI, primarily on a number of multi-gigawatt data center clusters. That implies around 100 times the power needs of today's large data centers.
"The gigawatt players are competing for some very finite resources at massive scale," said Ryan Mallory, chief operating officer at Flexential, a privately held data-center operator with 42 sites across the U.S.
The prospect of scarce electricity is driving the stock prices of independent power producers like Constellation Energy, Talen Energy, and Vistra. However, the drawback compared to European stocks is that it is a more crowded trade. Each of those stocks has risen more than 30% this year so far.
For those looking for a nuclear-powered U.S. alternative, Georgia Power -- owned and operated by Southern Co. -- is an electric utility that is already leading in nuclear energy. Its two recently opened nuclear reactors are the only ones built in the past decade in the U.S., although they came in at more than double the original estimated cost of $14 billion, according to the U.S. Energy Information Administration.
Flexential's Mallory said his company works with Georgia Power and was also having conversations about the potential for small modular reactors to power its data centers, although the main obstacle is the multiyear permitting process they are likely to face.
Write to Adam Clark at adam.clark@barrons.com
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(END) Dow Jones Newswires
July 18, 2025 03:00 ET (07:00 GMT)
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