Smart Money Places AI Bets on Energy Technology

Venture capitalists are placing increasingly large bets on AI startups, having poured over half a trillion dollars into the sector in the past five years.

However, a recent report from Sightline Climate suggests the most strategic investment opportunity today may lie in energy. Their research indicates that up to 50% of announced data center projects could face delays, with power access being a primary bottleneck.

Out of the 190 gigawatts of data center capacity the firm is monitoring, only 5 gigawatts are currently under construction. Last year, roughly 6 gigawatts of projects from Sightline's database went live. Meanwhile, a much larger portion—approximately 36%—experienced schedule slips in 2025. These delays could ultimately impact large enterprises and other businesses reliant on AI.

This supply-demand imbalance presents a clear opportunity for investors. Here's a closer look.

Tech giants like Google and Meta are dedicating significant capital to develop solar, wind, and nuclear projects. They are also backing emerging technologies, such as Form Energy's 100-hour battery, through direct investments and partnerships with utilities to speed up deployment.

Numerous startups are developing solutions to the power challenge. Companies like Amperesand, DG Matrix, and Heron Power are innovating in power conversion, while firms such as Camus, GridBeyond, and Texture are creating software to optimize electricity management.

Power availability remains a critical constraint for data centers, a limitation unlikely to ease soon. Goldman Sachs projects AI will drive a 175% increase in data center power consumption by 2030.

These grid shortages are unprecedented in modern times and are pushing electricity prices higher nationwide. Consequently, many tech firms are exploring alternative ways to power their facilities. (The Trump administration, anticipating a political crisis, is urging tech companies to build their own power sources, pay premium rates, or both. Most, of course, had already planned to do so.)

Grid Alternatives

Amazon, Google, Oracle, and other major tech companies are actively working to reduce their reliance on the traditional grid. Several new data centers are being planned with on-site power generation or a hybrid model combining on-site sources with grid connections.

The largest data center operators are leading this shift. While less than a quarter of projects with a defined power source plan to use on-site or hybrid systems, those projects collectively account for 44% of total planned capacity.

This trend is driven partly by shortages of key power generation equipment, like gas turbines, and an aging electrical grid. These challenges are creating openings for alternative energy solutions.

Google's recent agreement to power a new Minnesota data center exemplifies one approach. The plan combines wind and solar energy with a massive 30-gigawatt-hour battery from Form Energy. Google also collaborated with utility Xcel Energy to design a new rate structure aimed at encouraging the integration of new technologies into the grid.

Form Energy's battery is just one example. Grid-scale energy storage is poised to capture a significant share of the power market. The U.S. Energy Information Administration estimates the country will have nearly 65 gigawatts of battery storage capacity by year's end. Following the industry trend, Form Energy is seeking to raise $500 million ahead of a potential IPO to capitalize on this momentum.

Underrated Technology

Energy supply is only part of the equation. Once electricity reaches the grid or a data center, it must be managed—a task that largely falls to the humble transformer.

Most current transformers use bulky iron cores wrapped in copper wire, technology dating back about 140 years. While reliable, this design becomes impractical as data center power densities increase. One expert told TechCrunch that by the time server racks reach a power density of 1 megawatt, the supporting power equipment could occupy twice the space of the racks themselves.

This is why investors are increasingly funding solid-state transformer startups. These companies aim to replace the old iron-and-copper technology with silicon-based power electronics. Although more expensive upfront, solid-state transformers are versatile enough to consolidate multiple pieces of data center equipment, which could make them cost-competitive overall.

Overall, investment rounds for battery and transformer companies have been notably smaller than the blockbuster funding seen in the AI sector.

This isn't necessarily a drawback—these rounds are more manageable for investors. Furthermore, as the world electrifies everything from transport to heavy industry, the demand for power will only grow, offering investors a hedge against a potential downturn in AI. Perhaps the best AI investment isn't in AI at all.