Oil at $100 Is a Bigger Threat to AI Stocks Than Most Investors Realize. Here's 1 Reason Why.
Key Points
Oil prices have surged due to the rising conflict in the Middle East -- and that is having a ripple effect.
Data centers use a ton of electricity, which tends to become more expensive as oil prices rise.
AI-focused companies will likely see lower profits as their electricity bills increase.
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With the Middle East conflict continuing to carry on, oil prices have remained sharply elevated across the board. While many people associate higher oil prices with paying more to fill up their gas tank, there are implications as well for the growing artificial intelligence (AI) industry.
Rising oil prices won't stop tools like ChatGPT or Gemini from working when you need recipe ideas or a summarized article, but they will affect the companies behind those tools.
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AI companies rely heavily on data centers to train, deploy, and scale their AI models and tools. Without data centers, AI as we know it today wouldn't exist, because they're the physical infrastructure that enables storage and learning for virtually all AI applications.
The issue is that these data centers require tons of power, and that's putting it lightly. Power is required to keep thousands of servers running 24/7, cooling systems flowing to prevent overheating and equipment damage, and data moving at high speeds.
When oil prices spike, so does the cost to generate this electricity. For AI companies -- especially hyperscalers like Amazon, Microsoft, and Alphabet -- this means operating their data centers becomes more expensive, cutting into their profits.
These companies typically charge a flat monthly fee for their AI tools, but suddenly raising prices to offset higher electricity costs could mean losing many customers, so most will simply have to deal with lower profits for the time being.
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Stefon Walters has positions in Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.
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