This decade's data centre boom hit a brick wall a couple of weeks back and then seemed to drive around it. Underneath the ambitious growth numbers – do you believe the projections or not? – participants in the industry are trying to figure out standard development issues when supplying power and water for an industry building up at speed. The upshot of the DeepSeek announcement is that more realistic assumptions about the future will be made.
A lot was made of the collapse in the share prices of leading US power generators when the DeepSeek announcement, promising AI that can use between 10x and 40x less energy, was made. But the share prices are still sky high.
Constellation, which is buying Calpine for US$16.4bn, was at US$346 when the announcement was made and dropped to US$276 but is now at US$320.
The US$346 was a peak and even now Constellation's share price is trading well above the company's yearly average. The share price started the year at US$225. The same is true for Vistra, which hit US$191 before the announcement then dropped to US$137 but is now back up to US$168.
Orsted and other European renewables can only dream of such levels. As too can the energy majors. The biggest, Exxon, is said to trade at a 46% discount to the S&P 500 index average.
There was a time Enron sought to challenge Exxon, as it turns out on the flimsiest of basis – that is with an asset light approach with hardly any assets. Is Enron back by the way? But now it is Exxon and others that are looking to get into the power sector to boost their share prices – using their gas to fuel the data centre boom.
This reminds of an innovation from a previous gas-fired boom, InterGen. Shell and Bechtel joined together to build a range of new gas-fired plants across the world combining energy and EPC skills. The joint venture was successful but the tensions between the two parties and their varying interests was said to be always around.
Various bespoke models are emerging in the new boom. Akin to InterGen, Chevron is planning a development joint venture with Engine No1 and GE Vernova to build a gas-fired plant. Denver-based CloudBurst Data Centers has entered a long-term agreement to purchase natural gas from Energy Transfer to power its flagship AI-focused data centre development in central Texas, enough for a 1.2GW plant.
Exxon is using its research into carbon capture and storage to build a gas-fired project for data centres with CCS. CEO Darren Wood said the company could get a site up and running in 2028/29. The rationale is companies such as Microsoft and Google have emissions 30% and 48% higher than in 2020/2019 respectively.
All this activity is unlikely to stop. In a slightly deadpan way, Exxon CEO Woods said during the recent company results announcement "with respect to DeepSeek, I would say that hasn't impacted the conversations to date that we've having with our customers".
While the data centre sector has been around for decades, the boost given by AI is a recent phenomenon. It is clearly impossible to see how it will precisely pan out. But if there is an alternative talked about that requires 10x–40x less energy clearly the AI industry will looking very closely into it.
There are as many different views about the AI growth projections are there are opinions. DeepSeek is a wake-up call, a game changer, AI will continue to grow whatever, greater efficiencies will create more demand, AI is akin to the dotcom boom, overhyped but here to stay at a more gradual pace. I favour the latter. The projections from last year seemed incredible. But everyone now buys goods using a dot.com site.
This week it was reported that SoftBank is seeking a project financing to support the the US$500bn Stargate data centre idea it is developing with OpenAI, Oracle and Abu Dhabi's MGX. Construction has already started on a project in Abilene, Texas. OpenAI says it is planning data centres in up to 16 US states and is looking to re-industrialise the country.
What is at stake? Data centres use 50x more energy per square foot than commercial real estate and can consume 450,000 gallons of water a day, some even more than 1m gallons. No wonder the sector generates a lot of talk. In the meantime DeepSeek went straight to the top of Apple's app store ranking, dethroning ChatGPT.
Meta CEO Mark Zuckerberg said his company will continue to invest in AI over time. "It is possible that we'll learn otherwise at some point but I just think it's way too early to call that."
There is a similar position on how the associated assets will be developed. The one certainty is gas always finds a way, fills a gap, like water.
