The Data Center Boom: Powering AI’s expansive future – Opportunities and risks posed by AI across industries

Dec 11, 2024 | Artificial Intelligence

Summary

Artificial Intelligence (AI) is at the forefront of technological innovation, transforming industries and reshaping how businesses and societies operate. From generative AI tools that enhance creativity to predictive analytics that drive smarter decision-making, AI’s applications are growing rapidly across sectors. Beyond its current capabilities, the future of AI promises even greater disruption, with advancements enabling breakthroughs in energy efficiency, transportation, industrial automation, and beyond.

However, with this transformative potential comes significant challenges, including energy consumption demands, ethical considerations, and the need for robust regulatory frameworks. This white paper explores the key trends driving AI adoption, highlights the strategic opportunities it creates, and examines the inherent risks and barriers to its widespread integration. By understanding these dynamics, stakeholders can make informed decisions to navigate the evolving AI landscape and harness its potential for sustainable and inclusive growth.

Trends in AI Applications

AI is rapidly transforming industries by automating processes, enhancing decision-making, and unlocking innovation capabilities. Current capabilities include generative AI (e.g., ChatGPT) and predictive analytics (e.g., demand forecasting). As AI evolves, its applications are anticipated to broaden, facilitating transitions to smart grids (e.g., efficient energy allocation, demand response, and renewable integration), decentralized computing (e.g., edge computing), and enhanced cybersecurity. Moreover, advancements in AI are at the center of an autonomous future, with increasingly sophisticated algorithms enabling automation in industrial robotics and driverless vehicles.

Industry Disruption, Adoption, and Risks of AI

As applications for AI become part of our everyday lives, AI has the potential to fundamentally reshape how we conduct business. Insights from Red Chalk Group’s (RCG) research and expert discussions suggest that AI could drive the most significant changes in key industries such as energy, industrial manufacturing, and transportation.

AI is enhancing consumer goods, especially smart devices, by enabling features like predictive text, health monitoring, and hands-free functionality (e.g., robotic cleaning), making them more intuitive and user-friendly.2 In industrial sectors, AI is being used for predictive maintenance, supply chain optimization, and robotics, driving productivity improvements and reducing costs. In the energy sector, AI can optimize grid management, enhance predictive maintenance, and integrate renewable energy sources, leading to more efficient and sustainable energy systems (e.g., National Grid’s leveraging of AI to predict weather trends in order to forecast solar generation capabilities).3 Meanwhile, in transportation, AI is used to manage complex routing challenges like the traveling salesman problem (e.g., Amazon utilizes AI on its SageMaker platform to enhance delivery services) and can also improve cold-chain monitoring and other fleet management systems by integrating real-time data from sensors and cameras.4

As AI continues to revolutionize industries, several inherent risks may limit future adoption. One prominent concern is the loss of privacy, exemplified in healthcare where AI-driven diagnostics and patient monitoring systems rely on vast amounts of sensitive personal data. Without safeguards (e.g., encryption and access controls), there is an increased risk of data breaches that could compromise patient confidentiality.6 Additionally, the use of AI in financial services introduces vulnerabilities to cyber threats, as automated trading becomes a target for attacks aiming to manipulate markets or steal sensitive financial information.

Furthermore, AI in transportation raises ethical concerns, particularly regarding autonomous vehicles’ decision-making abilities in critical situations. Moreover, AI could displace jobs in industries like manufacturing, where AI-driven robotics and automation threaten traditional employment roles, necessitating workforce reskilling and adaptation strategies to leverage both human and AI capabilities.

These risks pose potential barriers to adoption of AI, but integrating ethical guidelines, regulatory frameworks, and cybersecurity measures could mitigate potential drawbacks and enable continued growth in the use of AI.

AI-Driven Power Consumption Forecast

As AI adoption accelerates, growing power demand could pose a critical challenge. The International Energy Agency forecasts that global total data center power consumption (e.g., HVAC, power systems) could “double by 2026” from 2023 levels.8 When looking at AI server power consumption on its own, Red Chalk Group forecasts demand could increase 7-fold by 2030, reaching an estimated 230 TWh of annual power consumption from only ~33 TWh today.

Projected annual growth in AI power consumption (~32%) significantly outpaces the forecasted power generation growth (~4%, Enerdata) over the same period.10 This disparity necessitates that data center owners deploy a multitude of solutions to meet AI’s ever-increasing power demand.

One potential solution is to continue investing in more energy efficient microchips to increase computing capacity without increasing power needs, such as Nvidia’s Blackwell GPU Platform, which is purported to require 25x less energy than earlier models.11 Other initiatives, such as more efficient in-row cooling systems, could minimize the amount of power going to non-IT processes and increase power efficiency gains, which have started to decelerate.

In addition to curbing power consumption, data center operators are prioritizing investments in renewable energy to meet sustainability goals. In 2023, approximately 17% of AI-related power consumption was sourced from renewables such as solar and nuclear energy. Red Chalk Group projects this figure to rise to 25% by 2030, driven by significant initiatives from hyperscalers. For instance, Meta has partnered with Orsted to power its data centers with solar energy.12

Renewable efforts extend beyond solar power, with nuclear energy gaining traction. In July 2024, Amazon announced a partnership with Constellation Energy, the largest operator of U.S. nuclear power plants. Similarly, Google is supporting the development of seven small modular nuclear reactors (SMRs) in collaboration with startup Kairos Power. SMRs are particularly appealing due to their lower upfront costs and faster construction times, making them well-suited to meet growing AI power demands.13

However, despite renewable advancements, carbon-based energy (e.g., natural gas) is expected to remain the primary power source near term, as it continues to reliably address surging power needs.

Lastly, data center owners can optimize their power demand and supply by collaborating with utilities to reduce consumption during peak hours and potentially even supply power back to the grid through demand response programs, as Google has done with local power utilities.14 These solutions could enable continued growth in AI use without overloading power grids which may not satisfy future AI power demand based on existing infrastructure capabilities.

Impact of Technological Advancements on Data Centers

Data center rack density has nearly doubled every five years, growing from 2.4 kW in 2011 to 12.8 kW in 2023, a trend that is expected to continue in the future. This is largely driven by semiconductor advances with chips integrating exponentially more transistors with each new model. Historically, microchips have kept pace with Moore’s Law (doubling of transistors every two years), though future improvements are expected to come at a slower pace as the physical and technological limits of traditional silicon-based processes are reached. However, major manufacturers (e.g., Intel) are forecasting to reach one trillion transistors by 2030 with the aid of novel materials (e.g., graphene).16

Key Participants Positioned to Capitalize on Growing Need for Data Centers

As the demand for data centers continues to grow to meet AI demand, many key companies are strategically positioned to capitalize on this growth. In the data center control room, companies like Schneider Electric and Johnson Controls lead the market with their advanced energy management systems (EMS) and data center infrastructure management (DCIM) solutions, enabling efficient monitoring and control of data center operations. In the electrical room, Eaton and Siemens provide critical power distribution and management solutions, including switchgear, transformers, and uninterruptible power supplies (UPS), ensuring reliable and continuous power delivery. In IT, network devices have become a point of emphasis as AI drives increased internet traffic, with leading providers Cisco and Lumen Technologies having recently announced over $5B in secured deals (and $7B in potential deals) to enhance data center connectivity.18

In mechanical rooms, which house lighting and HVAC systems, companies like Daikin and Trane provide energy-efficient cooling solutions that reduce operational costs and enhance environmental sustainability. Outside of a data center facility, solar providers such as First Solar and SunPower lead with their innovative solar panel technologies, helping data centers achieve sustainability goals and reduce reliance on non-renewable energy sources.

Conclusions

In conclusion, the rapid advancements in AI are fundamentally reshaping industries by driving automation, enhancing decision-making, and unlocking innovative capabilities. Strategic industries such as energy, transportation, and industrial operations are already benefiting from AI-driven efficiencies, while consumer goods are becoming increasingly intuitive and adaptive. However, the growth of AI introduces significant challenges, particularly around energy consumption, data privacy, cybersecurity, and workforce adaptation, which must be proactively addressed through investments in energy-efficient technologies, renewable power integration, and ethical frameworks.

To capitalize on AI’s transformative potential, organizations must balance innovation with sustainability, leveraging partnerships and technological advancements in areas like semiconductors, data center optimization, and renewable energy. Addressing these challenges and risks effectively will be critical to enabling the continued growth of AI applications and ensuring that their benefits are equitably realized across industries and society. This future depends on coordinated efforts across stakeholders, fostering an AI ecosystem that prioritizes efficiency, ethics, and resilience.

Other Considerations

While this white paper has explored critical aspects of AI and data centers, there are other considerations that warrant While this white paper has explored critical aspects of AI and data centers, there are other considerations that warrant attention:

  • AI Infrastructure Investment: What strategic partnerships and funding models will sustain and accelerate data center growth in the AI-driven era?
  • Emerging Data Center Technologies: How will innovations like advanced cooling systems, quantum computing, and other innovative technologies reshape the future of data centers?
  • Sustainability in Data Centers: What defines a truly sustainable data center, and what steps can organizations take to achieve these benchmarks?

For ongoing insights into data center trends, sustainability, and the evolving AI landscape, follow and connect with Red Chalk Group.

About Red Chalk Group

Red Chalk Group is a boutique professional services firm focusing on advising senior management on issues related to top-line growth, disruptive technology, key mega-trends, and related intellectual property. Our firm delivers strategies related to new revenue platforms, emerging and disruptive technologies, industry & competitive analysis, merger & acquisition/investment support, and IP analysis and transaction services. Red Chalk Group has helped business leaders address their greatest challenges, issues, and opportunities at the most senior levels.

Download White Paper

Footnotes:

  1. Red Chalk Group; Michael Bennett, “The Future of AI: What to Expect in the Next 5 Years,” Institute for Experiential Artificial Intelligence at Northeastern University; Bernard Marr, “The 10 Most Important AI Trends for 2024 Everyone Must Be Ready for Now,” Forbes.com
  2. ACL Digital, “The Impact of AI and Machine Learning on Connected Consumer Electronics”
  3. National Grid, “Former DeepMind expert’s AI tool could help boost National Grid ESO’s solar forecasts”
  4. AWS, “Solving the Traveling Salesperson Problem with Deep Reinforcement Learning on Amazon SageMaker”; Agile Systems, “Revolutionized Fleet Management: Solutions in ML, Edge Computing and Conversational AI”
  5. Red Chalk Group
  6. National Library of Medicine, “Data Privacy in Healthcare: In the Era of Artificial Intelligence”
  7. Red Chalk Group
  8. IEA, “Electricity 2024: Analysis and Forecast to 2026”
  9. Red Chalk Group; IEA, “Electricity 2024: Analysis and Forecast to 2026”; Goldman Sachs, “Generational Growth AI, Data Centers, and the Coming US Power Demand Surge”
  10. Enerdata, “Energy and Emissions Projections 2050”
  11. Nvidia, “NVIDIA Blackwell Platform Arrives to Power a New Era of Computing”
  12. Data Center Dynamics, “Meta signs renewable energy deal in Arizona with Ørsted”
  13. Wall Street Journal, “Tech Industry Wants to Lock Up Nuclear Power for AI”; Wall Street Journal, “Google Backs New Nuclear Plants to Power AI”
  14. Data Center Frontier, “Google Is Now Reducing Data Center Energy Use During Local Power Emergencies”
  15. Red Chalk Group; Digital Realty; NREL
  16. Intel; Stellium, “Moore’s Law Impact on the Development of the Data Center Sector”
  17. Red Chalk Group; Uptime Institute, “Global Data Center Survey 2020”; JLL, “Data Centers 2024 Global Outlook”
  18. Wall Street Journal, “It Isn’t Just Data Centers – AI’s Plumbing Needs an Upgrade”
  19. Red Chalk Group; Chartered Institution of Building Services Engineers, “Electrical Distribution System in a Data Center”; IEEE, “A Review of Data Centers Energy Consumption and Reliability Modeling”; Company websites

Additional Insights