AI-Driven Rally Set To Expand To Power, Commodities, Utilities: 'It's Not Just About Nvidia Anymore'

Nvidia Corp. NVDA is in the spotlight this week as it prepares to report its first-quarter 2024 earnings on Wednesday. This announcement marks the first anniversary of its remarkable first-quarter 2023 earnings, which ignited an AI-driven rally in the chipmaker industry.

The consensus among Wall Street analysts predicts Nvidia to report an earnings per share (EPS) of $5.60, more than five times the EPS from the same quarter last year. Revenue projections are similarly optimistic, with expectations set at $24.59 billion, over three times the revenue in Q1 2023.

As Bank of America noted in a recent note, since the ‘blowout’ Q1 2023, Nvidia’s market capitalization has surged by $1.5 trillion. The company’s last twelve months (LTM) EPS has skyrocketed by 617% year-over-year, and mentions of AI during corporate earnings calls have increased by 186%.

Yet, the AI-driven gains initiated by Nvidia are now expected to extend beyond the chipmaking sector to encompass power, commodities, and utilities, according to Bank of America’s analysts.

‘It’s not just about Nvidia anymore,’ Ohsung Kwon, CFA, equity and quant strategist at Bank of America, stated.

Nvidia has driven 37% of S&P earnings growth over the LTM and 11% of returns. However, it is projected to contribute only 9% to earnings growth over the next 12 months.

Nvidia’s 1-Year Share Price Performance vs. Semiconductor Industry – iShares Semiconductor ETF SOXX

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Demand From AI Data Centers To Fuel Gains In Power Players

McKinsey projects a 10-12% annual increase in global data center power demand between 2020 and 2030.

Bank of America analyst Andrew Obin believes that “AI adoption adds potential upside to these forecasts.”

The investment bank foresees that various sectors will benefit from AI-centric demand growth, including power producers with merchant capacity, grid equipment providers, pipeline companies, and grid technology providers. Commodities such as copper and uranium are also expected to benefit.

Amid this backdrop, Vertiv Holdings LLC VRT, a manufacturer of power and cooling equipment for data centers, has significantly outperformed Nvidia by 300% since Nvidia’s spectacular AI quarter last year.

Vertiv’s portfolio, which includes electrical and thermal equipment for data centers, accounts for approximately 75% of its revenue. Projections suggest that global data center demand could reach 126-152 GW by 2030, driving around 250 TWh of new electricity demand, equating to 8% of total US power demand by 2030. Data centers operate a highly power-intensive model, necessitating constant power access and reliable connectivity.

Chart: Power Player Vertiv Holdings Sharply Outperformed Nvidia In The Last Year

Utilities To Benefit From AI-Driven Power Demand

Paul Cole, a research analyst at Bank of America, commented, “Investors in utilities are likely too cautious in estimating the incremental margin opportunities presented by data center growth.”

He identified Constellation Energy Corp. CEG, Public Service Enterprise Group Inc. PEG, Vistra Corp. VST, NextEra Energy Inc. NEE, and Dominion Energy D as clear beneficiaries of the data center proliferation and the associated increase in power needs.

Chart: Year-To-Date Performance Of $CEG, $VST, $NEE and $D

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Image generated using artificial intelligence via Midjourney.