This Energy Stock Is Helping Solve AI's Biggest Constraint

Without power and dependable access to electricity, there is no artificial intelligence (AI) revolution. A 2024 report by the International Energy Agency (IEA) indicates that data centers accounted for 1.5% of global electricity consumption that year.

Data points like those are among the reasons why some investors are turning to utility stocks as non-tech AI plays. It's a logical line of thinking but not risk-free.

Grid enhancements take time. Likewise, it can take five or more years for utilities to add new transmission lines for data centers. That doesn't jibe with hyperscalers' "let's get started now" views.

Data centers' massive power demand may spell opportunity with this stock. Image source: Getty Images.

Bloom Energy (NYSE: BE) solves that issue by bringing power straight to data centers' doorsteps. Bloom's status as the leader in on-site power delivery explains why the industrial stock quadrupled in just six months. Let's see if more is in store for this high-flying stock.

A bright outlook for Bloom

It's worth taking with a grain of salt because Bloom itself published the report, but the company's research finds that 61% of data center developers will bring their own power if local grids aren't up to the task of meeting demand. For hyperscalers to BTOP (bring their own power), they need to engage companies with on-site delivery expertise, including Bloom.

Put simply, access to power is the biggest hurdle to data center growth. As noted, hyperscalers allocating billions of dollars to data center development don't have the luxury of time. They have to justify those big expenditures to analysts and investors, many of whom focus on near-term implications rather than long-term results. Translation: Bloom fills an important void.

Perhaps adding to the allure of Bloom's leadership in what's also known as behind-the-meter (BTM) power generation is the fact that this form of power delivery isn't a one-hit wonder. Some experts believe on-site power increases flexibility and is likely to play a vital role in future efforts to shore up energy grids.

Said another way, Bloom is viewed primarily as an AI data center power stock today, but the leopard may change its spots in the future.

Is Bloom a buy? It depends.

Amid a 1,327.4% gain over the past year, there are concerns that Bloom has run too far, too fast. A move like that may give some market participants pause. Throw in the facts that the shares trade at 30x sales and 230x forward earnings, and some investors may be apt to stay on the sidelines.

Consider these points. First, valuation alone isn't a reason to buy or sell a stock. Second, growth stocks like Bloom don't always offer investors pullbacks that appear deep enough to buy. It's either buy on a modest dip or when the stock is moving up.

Third, history confirms that all-time highs don't lead to substantial sell-offs. They often lead to more record highs.

Decision time

Bloom stock isn't cheap, but the company is a leader in addressing a major AI constraint. Investors viewing the stock through a long-term lens may want to consider a small position or risk paying a higher price for that privilege in the near future.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bloom Energy. The Motley Fool has a disclosure policy.