As generative artificial intelligence technology rapidly develops, computing power demand is exploding, which brings massive electricity demand. The latest viewpoint of Goldman Sachs believes that ChatGPT requires nearly 10 times the electricity of a Google search for each query. This difference in electricity consumption will bring huge changes to the way electricity is consumed and its cost in the United States, Europe, and even the world.

Recently, Bill Gates' $1 billion investment in a nuclear power station broke ground in Wyoming, USA. On the 16th local time, he said he will also increase investment: "I have invested more than ten billion, and I will invest tens of billions more."

The reason why Bill Gates continues to invest in this nuclear power station is largely because the development of AI will bring huge pressure on electricity consumption. "The data center we are going to build will increase electricity consumption by up to 10%." He said that the rise of electric vehicles and various home heating equipment such as electric heat pumps have pushed up U.S. electricity demand, and the emergence of data centers is an 'additional burden'. Therefore, large tech companies are researching how to provide more power to make these data centers meet the explosive growth of AI demand.

In addition, the surge in demand for new generation technologies has sparked concerns about potential power shortages, slowing down the progress of the coal phase-out in the US power industry. Alliant Energy recently postponed its plan to convert its Wisconsin coal-fired power plant to natural gas from 2025 to 2028 due to “resource adequacy issues.” FirstEnergy has given up the goal of phasing out coal by 2030 due to "resource adequacy issues."

According to IEA data, using the OpenAI chatbot ChatGPT for one query consumes 2.9 watt-hours of electricity, while a Google search only requires 0.3 watt-hours, which is only about 1/10 of the former. By 2026, the electricity consumption related to data centers, cryptos, and AI may increase to 620-1,050 terawatt hours. By 2023, Germany's total electricity consumption is 465 terawatt hours, and Japan's total electricity demand is 870 terawatt hours.

For the domestic market, HTSC pointed out that data center construction is already advancing overseas, and there is also high growth potential in China driven by the landing of AI. The demand for electricity growth overseas provides a global growth opportunity for excellent power generation and electrical equipment companies in China, and the upward cycle of the global power-related industry chain is still being strengthened.

It is worth mentioning that with the arrival of high temperature weather in summer, China's electricity consumption has ushered in a peak period. According to the National Energy Administration's prediction, the national electricity load will grow rapidly during the summer of this year, and the maximum load will increase by more than 100 million kilowatts compared to the same period last year, an increase of more than 7% compared to the peak load of 1.339 billion kilowatts set in July last year. Driven by the high electricity demand caused by the high temperature and the shortage of electricity in some regions, investment opportunities in the electricity sector are worthy of attention.

Sinolink research report shows that there are four investment themes in the power equipment sector:

1) Power equipment going overseas: the prosperity of China's power equipment exports is clearly on the rise, with serious supply and demand mismatches overseas, and subsequent debugging of overseas power grid investment planning + export exceeding expectations + individual stock exceeding expectations.

2) Power system reform: policies will drive the industry into the second growth curve.

3) UHV transmission lines & main grid: The strong demand for the second batch of wind and photovoltaic power bases, there are still multiple line gaps, and subsequent debugging of newly disclosed lines + increasing the penetration rate of flexible invoices + individual stocks exceed expectations.

4) Distribution grid renovation: The top-level policies + some provincial tenders have significantly increased, and subsequent policy + tendering exceeds expectations + individual stocks breaking through winning bids.

Huaxi Securities predicts that there will be a rapid explosion in IT demand for new energy, ushering in a golden period of development. This year, an unprecedented large-scale equipment update is brewing in the power industry, and the institution believes that the power industry has ushered in a new opportunity period.

Related concept stocks:

China Resources Power (00836): Recently, China Resources Power announced that the subsidiary power plant's electricity sales volume reached 16.0247 billion kilowatt-hours in May 2024, an increase of 6.7% year-on-year. Among them, the electricity sales volume of the affiliated wind power plant reached 3.6058 billion kilowatt-hours, a decrease of 2.7% year-on-year; the electricity sales volume of the affiliated photovoltaic power station reached 0.6549 billion kilowatt-hours, a year-on-year increase of 276.8%. The cumulative electricity sales volume of the affiliated power plant in the first five months of 2024 reached 81.3868 billion kilowatt-hours, a year-on-year increase of 5.7%.

Huaneng Power International, Inc. (01071): The company has announced its first quarter financial results for 2024, with revenue of approximately 30.952 billion yuan, a 3.21% decrease year-on-year; net income attributable to shareholders of listed companies of approximately 1.862 billion yuan, a 64.21% increase year-on-year; and basic earnings per share of 0.16 yuan. The announcement stated that the increase in net income was mainly due to the decline in coal prices.

Datang Renewables (01798): In mid-June, BOCOM International released a research report stating that for Datang Renewables to have a significant increase in valuation, breakthroughs in profitability must occur. Taking into account the changes brought about by the power system reform, the target price has been raised by 10.5%, from 2 Hong Kong dollars to 2.21 Hong Kong dollars. Due to limited upside potential, the rating has been downgraded from "buy" to "neutral".

Huaneng Power International, Inc. (00902): In late April, Daiwa Securities released a research report maintaining a "buy" rating on Huaneng Power international, Inc. It believes that the company will benefit from the development of artificial intelligence in the Asia-Pacific region, particularly the growing demand for electricity in Singapore, which will benefit Tuas Energy, a subsidiary of Yau Lee Holdings.

CGN Power Co., Ltd. (01816): At the end of April, BOCOM International released a research report stating that the share price of CGN Power has risen by 29% since the beginning of the year, and the dividend yield of its H shares has narrowed to 4.4%. Its premium valuation compared to other Hong Kong-listed electric utilities cannot be explained solely by its profit certainty. Based on the potential for CGN to double its installed capacity in the next ten years, the bank has raised the target price of CGN Power to 3.2 Hong Kong dollars and reiterated its "buy" rating.