Generative AI moves from cloud into physical world

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“The volume of annual power projects that will need to be developed to support the growth in GenAI is no less impressive than data centre growth,” Morgan Stanley said in a recent paper, Powering GenAI: How Much Power, and Who Benefits?

Around the world, it expects “growth upside for power providers and data centre infrastructure stocks,” but does not expect AI’s energy demands to move the needle much for regulated utilities.

David Dzienciol, NextDC’s chief commercial officer, said AI data centres come in two types: “training” facilities that store huge amounts of data where AI applications learn, and “inference” facilities that deploy the AI for end users.

“Almost every single vertical market is being affected in a positive way by the ability to leverage generative AI to drive business efficiency, new products, software development, or augmentation,” Dzienciol said. “We don’t believe this is a fad that will come and go. It’s quite remarkable to see the pace of change.”

Data centres are measured by power capacity, rather than square metre size, and large facilities can be more than 100 megawatts – enough output to light up 60,000 homes for a day.

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“The rise of generative AI has had a major impact on the [data centre] sector, resulting in several data centre players re-evaluating how they strategise data centre development,” commercial agency Cushman and Wakefield says.

NextDC is not the only beneficiary. From a valuation of $3 billion four years ago, Macquarie Asset Management and PSP Investments’ data centre operator Airtrunk is now worth up to $14 billion. Industrial warehouse behemoth Goodman Group is also aggressively chasing expansion.

Chairman Greg Goodman told investors in February the real estate trust was advancing its data strategy – “securing power and planning, commencing infrastructure and continuing to work with customers on optimal delivery models that suit their requirements.”

The company plans to build a 126-megawatt campus on the former Castrol headquarters in Sydney, where it had previously intended to put three warehouses, replacing them instead with two three-story data centres and an associated 5558-square-metre office.

“The design of data centres will need to change as well; as the rack densities will increase, so too will the intensity of cooling technologies,” Cushman’s recent report, 2024 Global Data Centre Market Comparison, says.

Goodman’s large 4 gigawatt global “power bank” across 12 major world cities would largely be built by converting existing warehouse and brownfield sites, analysts at investment bank Citi said.

Not surprisingly, AI’s hyper expansion is raising questions about its energy-intensive impact on the environment. But Morgan Stanley’s analysts believe those concerns are overstated.

“Contrary to the consensus view, we believe the net sustainability impacts of GenAI are likely to be positive – the impact to global carbon emissions is likely to be small, while the sustainability benefits of GenAI are likely to be large,” they said.