1. Why AI is driving so much data center power demand:
As we noted in a previous post, a ChatGPT query consumes nearly TEN TIMES the electricity of a standard Google search. What’s more, in just four years, the AI market is projected be more than five times bigger than it is now — pointing to an exponential growth rate in the tech-driven demand for power.
2. Technology’s efficiency gains have slowed.
Since 2020, the tech industry’s gains in data center efficiency have slowed significantly — while, at the same time, the power consumed by the average data center has risen — placing ever more pressure on the substation feeding it power. According to some estimates, the market share of US power consumed by data centers will increase to twelve percent. That’s quadruple the three percent they used in 2022 — and an estimated 30 to 40 percent of the projected increase in demand for power between now and 2030.
3. Projected need for new substation construction by 2030:
The average electrical substation has a power capacity ranging from 20 to 50 megawatts (MW); a large substation might handle up to 100 MW or more. The consumption increase in projected data center demand by 2030 means the United States would need 240 gigawatts (GW) of additional data center infrastructure. At the very least, that would require the construction of an additional twenty-four-hundred 100-MW electrical substations in the next five years alone.
We mentioned AI’s projected four-year growth rate in the first paragraph (above), because that’s the current lead time for some of the electrical substation parts most critical to completing the substations feeding new AI data centers — equipment like cable and wire racks.
4. A White House initiative that could make data-center power demand explode:
Shortly after taking office for his second term, President Trump announced a joint venture — and a partnership formed by OpenAI’s Sam Altman, Oracle’s Larry Ellison and SoftBank’s Masayoshi Son — with plans to invest up to $500 billion for infrastructure tied to artificial intelligence. The new entity, known as Stargate, plans to begin building new data centers, and the electricity generation needed to support them, in Texas. The initial investment is expected to be $100 billion and could reach five times that sum.
In just about any other industry, news for an initiative like Stargate would be cause for celebration — and Altman, Ellison and Son would be hailed as heroes. But in the electrical substation industry, the very word Stargate is likely to send blood pressures soaring. After all, the projected need for 240 GW of additional data center infrastructure by 2030 was predicted in a research article published by Goldman Sachs eight months before Trump’s January, 2025 announcement. How much more demand for new data centers will Stargate drive and, more importantly, where will utilities and contractors find the equipment needed to complete the substations to feed these new data centers?
5. News that could make data-center power demand implode:
Just four days after President Trump’s January 22 announcement, the Chinese AI startup named DeepSeek unveiled an open-source AI model (DeepSeek R1) for which, the company claims, it had spent just $5.6 million on computing power for its base model. That’s roughly the amount of money OpenAI spends on computing power to run ChatGPT for just eight days (Source: Google Gemini).
That announcement sent shockwaves through financial markets (in particular the tech sector) the next day. The tech-heavy Nasdaq plunged by 3.1%, and the broader S&P 500 fell 1.5%. Moreover, according to an online report by CNN, Nvidia (NVDA), the leading supplier of AI chips, fell nearly 17% and lost $588.8 billion in market value — by far the most market value a stock has ever lost in a single day, more than doubling the previous record of $240 billion set by Meta nearly three years ago.
For perspective, Nvidia lost more in market value Monday than all but 13 companies are worth — period. Nvidia began the day as the most valuable publicly traded stock on the market — over $3.4 trillion — after its shares more than doubled in each of the past two years. It ended the day in third place behind Apple and Microsoft.
6. DeepSeek reactions from consumers and our industry have been swift.
Literally overnight, DeepSeek dethroned ChatGPT as the most popular app on both Apple’s App Store and Google’s Play store. Here at Peak, our inboxes filled overnight with emails from substation industry friends, associates and customers — all of whom had questions, and offered opinions, about DeepSeek.
The most common questions we’ve received are variations on the ones we ourselves would like answered: Are DeepSeek’s claims of computing efficiency for real, OR 1) Did they just figure-out a way to piggyback on someone else’s work, and/or 2) Are they simply under-reporting the total computing power needed to create DeepSeek R1?
The most common comments we’ve heard are also variations on what we’re thinking: The Chinese have a long history of lying, and of stealing US-developed technology — which is why we’re having a very hard time believing that a small startup from China could develop an AI model to rival ChatGPT’s with roughly 1/1000th the computing power.
7. Why Americans shouldn’t trust the Chinese with their digital security:
On February 4, Yahoo Finance reported: Data from Sensor Tower shows the app was downloaded 16 million times in its first 18 days, surpassing the 9 million downloads recorded by OpenAI’s ChatGPT app in the same timeframe.
That said, if you’re among those who’ve already downloaded the App to your devices, we’d challenge you to try asking DeepSeek sensitive questions about China; not only as a barometer for its trustworthiness, but a potential warning sign for what the app’s creators might be doing with your personal data. A reporter from Time.com did just that, and the answers she received should concern you. Below are two questions she asked, and DeepSeek’s responses.
QUESTION: What happened during the military crackdown in Beijing’s Tiananmen Square in June 1989?
ANSWER: “Sorry, that’s beyond my current scope. Let’s talk about something else.”
QUESTION: What is the state of US-China relations?
ANSWER: “We hope that the United States will work with China to meet each other halfway, properly manage differences, promote mutually beneficial cooperation, and push forward the healthy and stable development of China-U.S. relations.”
8. America’s tech leaders have spoken with their wallets:
In an article dated February 6, just 12 days after the news of DeepSeek’s release (Tech Giants Double Down on Their Massive AI Spending /// Amazon, Google, Microsoft and Meta pour billions into artificial intelligence, undeterred by DeepSeek’s rise), the Wall Street Journal reported the following:
Tech giants projected tens of billions of dollars in increased investment this year and sent a stark message about their plans for AI: We’re just getting started.
The four biggest spenders on the data centers that power artificial-intelligence systems all said in recent days that they would jack up investments further in 2025 after record outlays last year. Microsoft, Google and Meta Platforms have projected combined capital expenditures of at least $215 billion for their current fiscal years, an annual increase of more than 45%.
Amazon.com didn’t provide a full-year estimate but indicated on Thursday that total capex across its businesses is on course to grow to more than $100 billion, and said most of the increase will be for AI.
Their comments in recent quarterly earnings reports showed the AI arms race is still gaining momentum despite investor anxiety over the impact of China’s DeepSeek and whether these big U.S. companies will sufficiently profit from their unprecedented spending spree.
9. The substation industry’s ultimate question about DeepSeek
Will DeepSeek spark the kind of revolution in AI development that all but eliminates projected growth in the need for new data centers — and the substations feeding them power? Or will its claims be proven bogus, and have no impact on demand for new data centers? The answers to those questions probably lie somewhere between the two extremes.
Financial professionals who follow the power-generation industry certainly believe DeepSeek’s disruptive potential — and its impact on future data center power solutions — merits close and careful analysis.
All that said, regardless of how this issue ultimately shakes-out, there’s no denying that lead times for equipment critical to substations feeding new data centers are at an all-time high — with no significant projected decreases coming anytime soon. Which is why, according to a September, 2024 report from McKinsey & Company, locations outside of the United States, such as Amsterdam, Dublin, and Singapore, have placed moratoriums on many new data center builds in recent years primarily because they lack the power infrastructure to support them… Adding to investor tension, as access to grids has declined, timelines for investing in and further building out grids for regulated utilities have become longer than the development cycle of data centers.
10. Where will the substation equipment you need come from?
For answers, contact Jason Harris any time. 205-807-0414 | jharris@peaksubstation.com