Energy demand is entering a new era tied to the insatiable need for power from the artificial intelligence boom. Global power consumption is surging at the fastest pace in over a decade, with annual demand set to rise by more than one trillion kilowatt-hours per year through 2030.
AI-driven data centers are contributing nearly one-fifth of that growth, with their power consumption expected to increase nearly 126 GW annually through 2028. This is almost as large as Canada’s total annual power demand.
The boom in energy consumption comes after years of insufficient investments in electric grids that’s left data-center developers concerned they could face power shortages, particularly in 2027 and 2028. Meanwhile, capital markets investors are looking into how to quickly finance energy infrastructure projects.
Powering AI was a key theme at two recent Morgan Stanley conferences, where investors noted that power suppliers and power equipment companies are likely to see benefits from data-center expansion, particularly among expectations that AI will unleash a productivity wave throughout the broader economy. This has investors focused on rising demand for off-grid solutions, eliminating bottlenecks in the energy supply chain and using credit markets to finance energy system growth.
“As the world gets digitized and electrified by AI, not only is it going to require more electricity, but it will require electricity of a certain type that a one-size-fits-all grid cannot deliver,” the CEO of an on-site electricity generation company said at Morgan Stanley’s Thematic Conference in December 2025. “It's not like as AI is growing, the rest of the electricity needs in the economy are slowing down. If AI can create a $10 trillion GDP improvement in the economy through productivity gains, no one has really contemplated how much additional power all those users are going to need. It’s mind-boggling.”
‘Bring Your Own Power’
Attendees at Morgan Stanley’s November 2025 Powering AI conference said that the power industry faces a multi-decade transformation, marked by shifts and opportunities. Investments in the industry hit a new high of $1.5 trillion in 2025, the latest full-year data available.
Off-grid solutions are a key area where investors might see additional value creation in the coming years. These solutions include natural gas, on-site renewables, microgrids, utility scale renewables, fuel cells, battery storage and nuclear energy, which would all play important roles in the future of energy, as the process of training AI models creates higher, and more variable pressure on the electric grid.
“The upcoming infrastructure CapEx cycle will create islands of wealth, and literal power,” says Stephen Byrd, Global Head of Thematic Research for Morgan Stanley.
Natural gas, for example, is likely to meet about one-fifth of the world’s new power needs, excluding China. Gas investments have been hitting record highs since 2024. Nuclear energy is also well positioned to potentially attract increased investment, while batteries and energy storage are also getting new investments across data centers and in markets like China.
According to Morgan Stanley Research, the larger scale of new data centers—now reaching 1GW to 4 GW per site—means that traditional grid connections are often delayed by political, permitting, and stakeholder challenges, including concerns over water usage, land footprint, noise and interconnection issues. This has led to a pivot that could open up opportunities for innovative power suppliers.
While most sites also maintain their ties to the grid, investors expect to see more developers shift toward hybrid or off-grid models that let developers ensure the resilience of their operations, in a tightening global power market, which places a higher focus on power equipment providers.
Shoring Up the Energy Supply Chain
One way data center-developers are looking to avoid power shortages in the next few years is to shore up their supply chains to prevent future delays. That means focusing on eliminating bottlenecks in a global supply chain for electric grid equipment, creating bespoke solutions for AI energy management and ensuring access to the increasingly in-demand workforce of data center construction and design engineers.
The CEO of a grid stability company said that they are now developing software specifically to manage energy loads for AI hyperscalers, while the CEO of another energy infrastructure company said they will be watching an extended energy supply chain closely for the next two years.
“We are getting ahead of the supply chain in terms of transmission, switch gear, breakers – all of those things you have to have. It’s going to be an interesting 24 months in terms of supply chain,” the energy infrastructure CEO said.
As companies develop alternatives to address the power demand bottlenecks, the difference between the price at which electricity is sold and the cost to generate it – also known as power spreads—could rise by 15%. This expansion in profit margins could lead to higher earnings forecasts for power generation companies and create $350 billion in value creation through the entire power supply chain.
At the same time, power companies are facing constraints that include more delays in getting grid equipment and an increase of 30% in costs since 2019.
For consumers—both households and corporations—higher demand means higher costs. Power prices are expected to remain elevated, becoming a political issue. Consumers are increasingly blaming data-center power demand for higher electricity bills. Utilities have introduced mechanisms to protect existing customers from rate increases caused by data centers.
“We expect national attention on this issue to grow heading into the midterm elections in the U.S., as affordability is often a top voter issue and recent elections were in part won by candidates running on cost-of-living issues,” Byrd says. “Utilities must find ways to address local concerns about environmental and water-related externalities, while also ensuring that consumers are insulated from potentially higher electricity bills.”
Financing Demand for Power
While some market observers have raised concerns about a potential overbuild or bubble in data center development, Morgan Stanley Research finds that long-term demand for compute and power is likely to justify current investment levels. Morgan Stanley Research forecasts U.S. data center demand could reach 74 GW by 2028, with a projected shortfall of about 49 GW in available power access. This scale of growth requires billions in capital for new energy infrastructure.
Large technology companies are likely to commit more than $1 trillion of spending in just the 2025-2026 period. A big focus for the credit markets in 2026 will be securing this financing.
Strategic financing is likely to be a critical enabler for data centers and growth may be reliant on the robust balance sheets of mega-cap hyperscalers, who can tap their own cash flows to finance about half of their spending.
Debt markets will play a big role to cover the other half, as those mega-caps are highly rated in the credit markets and could easily use their capital leverage to fund growth, according to Ray Spitzley, Morgan Stanley Vice Chairman and Co-Head of Energy Transition Investment Banking.
Several large technology hyperscalers have been raising tens of billions of dollars in the credit markets at a fast pace. This new borrowing has been coming at a discount, with the issuers willing to pay investors a bit more than their existing debt to take it on. Demand in turn has been very high for this debt. And in many cases, this borrowing remains below anything that might reasonably prompt rating agency action.
“We’re simply not going to get all of this capacity built – whether it is data centers or grid infrastructure – without strong credits,” Spitzley said. “From a system perspective, it’s clear that the hyperscalers have the credit capability and market capitalization to support this build out. These are enormous capital expenditures and these decisions are not fly-by-night–this is not a sector where a smaller company can easily just say, ‘I’m going to get into the 1 GW data center business.’”
Bottom line: A multi-decade transformation of the power industry is underway, with risks and opportunities ahead for corporations and investors.
- Data center operators risk power shortages, especially over the next two years as their demand for energy surpasses supply.
- Expect increased collaboration between fossil and non-fossil fuels, wider adoption of tiered pricing and a surge in spot market and behind-the-meter sales, all driving sustained, elevated power spreads.
- Power demand is increasingly becoming a political issue, with consumers blaming data centers for higher electricity bills.
- Supply chains for gas, nuclear, energy storage and fuel cells stand to benefit from stronger pricing power and new growth prospects, while grid operators gain from higher investment and improved returns.
