The Energy Sector, AI and other ideas
What's happening in the energy sector and what does AI have to do with it? #49
Welcome to Notes by Letícia, a biweekly newsletter, where I write about the Venture Capital market. Here, you can expect a new discussion about the Venture Capital market, from what I’m reading to a deep dive on market data, on a biweekly basis.
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Before starting this edition, in the month of May I was only able to release one article due to a health issue I had during the last week. Therefore, if you noticed a certain absence of Notes by Letícia in your inbox, that is what happened. However, now I am 100% back!
During the past few weeks, I have read various interesting contents and decided to compile some that provoked me to think in a different way.
The growth in AI adoption and companies building in this sector has resulted in a greater need for energy generation due to the increase in size and number of data centers
The increase in energy demand is projected to be greater than previously calculated, largely due to the growth of AI. In an article from Yet Another Value Blog, some of the latest earnings calls from energy infrastructure companies are shared, all of which predict higher growth than expected.
We have already seen this increase in demand due to the electrification of vehicle fleets and Bitcoin mining. Therefore, this effect is not new, but it is likely to have a significant impact as it represents a platform shift, bringing greater scale to the adoption of the technology.
The need for the increase in energy generation makes sense, but it must be based on sustainable and renewable sources. Therefore, it's important to keep an eye on the new technologies and solutions that enable larger-scale energy generation and distribution in a safe and reliable manner (something that sources like solar and wind are not as much, due to the influence of external elements like rain and wind).
This will require significant investment in current infrastructure and technology, as this sector has a lower speed of technological development, due to being expensive and needing a considerable amount of time to be built (it is not easy to move an hydroelectric power facilities). According to data from Goldman Sachs, Europe has the oldest energy transmission and distribution infrastructure in the world. Therefore, in the coming years, we will see greater investments worldwide, but primarily in Europe and North America, which are also some of the most developed regions in the world and thus have a higher forecast for energy demand.
Hardware vs Software
In this article by Kyle Harrison, he reflects on the shift in sectors of interest over time, specifically hardware. As Marc Andreessen mentions in his text "Software is eating the world", with the move to the cloud, it has become very cheap to start a business focused on software. Therefore, there really wasn't an appetite or incentive to build large businesses focused on hardware. From a VC's perspective, software can bring a return more quickly and with less need for investment, due to the reduction in technology costs, especially in recent years.
However, an interesting reflection brought to the conversation is the perception that to build a business that truly has a moat and has the potencial to becoome one of the most valuable companies, software may not be the best way, instead, having a business where hardware is an important part might be better.
By looking for some signs of greater appetite in industries where hardware is a core part, it is possible to see that sectors like the space industry are gaining more attention (even considering the 2021 and 2022 investment peak), with SpaceX serving as a benchmark and attracting attention.
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