The best investment in AI could be in energy technology

Venture capitalists have made increasing bets on AI startups, investing more than half a billion dollars in the sector for the last five years.

But today, the smartest investment in AI might be in energy, according according to a report by Sightline Climate. Researchers found that up to 50% of announced data center projects could face delays. One of the biggest culprits is access to power.

Of the 190 gigawatts of data centers the company is tracking, only 5 gigawatts are under construction. About 6 gigawatts of data center projects in Sightline’s database came online last year. A much larger percentage (around 36%) saw their deadlines delayed in 2025. The delays may affect large companies and other companies that use AI for their businesses.

This reduction in supply and demand is an opportunity for investors. Here’s why.

Large technology companies such as Google and Meta have dedicated a large part of their balance sheets to the development of solar, wind and nuclear projects. These companies are also supporting emerging technologies such as Form Energy’s 100-hour battery through direct investments and working with utilities to accelerate adoption.

Dozens of startups are looking for technologies that address the energy problem. For example, Amperesand, DG Matrix and Heron Power are developing new energy conversion technologieswhile companies like Camus, GridBeyond and Texture are construction software which can manage the flow of electrons.

Power remains one of the most significant constraints for data centers, a deficit that is not likely to change anytime soon. AI is expected to boost data center energy consumption by up to 175% by 2030. according to Goldman Sachs.

These grid shortages are unprecedented in modern times and have driven up electricity prices across the country. This has pushed many technology companies to explore alternative ways of powering their data centers. (The Trump administration, sensing an imminent political crisis, is urging technology companies build your own energy source, pay higher rates, or both. Most had already made plans to do so, of course).

Network alternatives

Amazon, Google, Oracle and other big tech companies have been working to minimize their dependence on the network. Several data centers are being planned that will use on-site power or a hybrid approach that combines on-site power with a grid connection.

Larger data centers are leading the charge. Less than a quarter of projects that have identified an energy source will use it on-site or hybrid; Together they represent 44% of the total capacity.

The change has been driven in part by shortages of power generation equipment, namely gas turbines – and an outdated grille. This opened a path for alternative energy sources.

Google’s latest deal to push for a new data center in Minnesota shows one way to address the problem. the company Combine wind and solar power with a massive 30 gigawatt-hour battery Form Energy. Google also worked with Xcel Energy to design a new rate structure that it says will help encourage the adoption of new technologies in the utility’s planning process.

Form Energy’s battery is not the only example. Grid-scale batteries are poised to take a big share of the energy market. By the end of this year, the United States should have nearly 65 gigawatts of battery storage capacity, according to the US Energy Information Administration. Like many of its peers, Form Energy is looking to capitalize on the momentum raise a $500 million round before an eventual IPO.

Underrated technology

Power supply is only part of the story. Once power reaches the grid or data center, it needs to be managed, a task that falls primarily to the humble transformer.

Most transformers today use huge blocks of iron wrapped in copper wire, a technology that is about 140 years old. It is reliable, but is becoming too bulky as data center power demands increase. When server racks reach 1 megawatt of power density, the power equipment needed to run them will take up twice as much space as the rack itself, one expert told TechCrunch.

That’s why investors have been flocking to support solid-state transformer rollout recently, who hope that silicon-based power electronics can supplant the old iron and copper technology. They are more expensive than existing transformers, but are also flexible enough to replace multiple pieces of equipment in a data center, which should make them cost competitive.

Taken together, the scale of investments in battery and transformer companies has been much smaller than some of the blockbuster rounds we’ve seen in the AI ​​industry.

That’s not a bad thing: those rounds are more manageable for investors. Additionally, as the world electrifies everything from transportation to heavy industry, the need for energy will only grow, giving investors a hedge against an AI downturn. Perhaps the best investment in AI is not AI at all.