The artificial intelligence boom is driving a new wave of innovation in the energy sector, as governments and corporations race to meet the enormous increase in electricity demand expected from the rapid expansion of data centers.

Experts estimate that power demand from US data centers alone could surge by about 360% by 2030, reaching 110 gigawatts. Meeting this demand while maintaining affordable and sustainable energy is widely viewed as a major challenge that will require innovative solutions and significant technological advances.

“There is no way to get there without a technological breakthrough,” said Sam Altman, founder of OpenAI, during the 2024 World Economic Forum in Davos.

For Altman, the scale of the challenge is a direct argument for increasing investment in nuclear fusion research, which supporters believe could eventually provide an unlimited source of clean energy.

Alongside figures such as Sam Altman and Bill Gates, many Silicon Valley investors have spent years backing fusion technology. Those efforts are now beginning to show results as new startups enter the sector and technological breakthroughs attract growing interest from Wall Street, reviving research that had seen limited progress for decades.

Big Tech’s interest extends beyond nuclear fusion to other advanced energy technologies, including enhanced geothermal power and space-based solar energy.

However, the most intriguing innovation emerging at the intersection of artificial intelligence and energy is not about generating new electricity at all. Instead, it focuses on improving the distribution of existing power and making energy consumption more flexible.

Virtual power plants instead of building new power stations

This week, [Google](https://www.google.com?utm_source=chatgpt.com) signed an unprecedented agreement with [Voltus](https://www.voltus.co?utm_source=chatgpt.com) to create a “virtual power plant.”

Under the agreement, Google will fund a program within the Mid-Atlantic power grid that pays households and businesses to reduce electricity consumption during specific periods.

The companies say the arrangement will provide Google with 100 megawatts of power capacity without requiring the construction of any additional infrastructure.

Google thus becomes the first customer of Voltus’ “Bring Your Own Capacity” program, which allows energy-hungry companies to finance electricity demand flexibility among communities surrounding their data centers.

Voltus connects a wide range of devices into a single virtual network, including electric vehicles, smart thermostats, and other energy-connected equipment. Participating households and businesses receive compensation, while the company can manage energy flows and utilize stored power when needed.

According to Latitude Media, technology companies participating in the program effectively finance the creation of a virtual power plant in regions where they need to operate data centers, while Voltus delivers that capacity directly to utility providers.

The model is designed to help data centers bridge the anticipated energy gap through the early 2030s.

The current pilot project is the largest and first of its kind, and it is expected to provide valuable insight into whether “energy flexibility” can help address the rapidly growing electricity demands of data centers.

Making data centers themselves more flexible in their energy use will also be an important part of the solution. A study from Duke University last year found that reducing data center electricity consumption during peak-demand periods could enable the addition of roughly 100 gigawatts of new data center capacity without building new power plants or transmission lines.

However, that approach remains unpopular among AI companies because it could reduce revenue during periods when energy consumption is curtailed.

As a result, virtual power plants have become one of the most popular solutions currently under consideration. Instead of reducing their own electricity use, major technology companies can pay others to consume less power, allowing them to secure the energy capacity they need while avoiding disruptions to their operations.

US stock indexes retreated on Tuesday as technology shares lost momentum, with investors turning more cautious ahead of inflation data and the highly anticipated initial public offering of SpaceX later this week.

Artificial intelligence-related stocks came under heavy selling pressure last Friday after disappointing guidance from Broadcom raised concerns about elevated valuations across the sector, particularly among semiconductor companies that have delivered strong gains this year.

Chipmakers declined, with shares of Intel, Broadcom, and Micron Technology falling between 1.7% and 2%, while the Philadelphia Semiconductor Index dropped 2% after gaining nearly 3% earlier in the session.

The technology sector within the S&P 500 also lost about 1.7%, as Nvidia fell 1.2%, Apple dropped 3%, and Microsoft declined 1.1%.

Jordan Rizzuto, Chief Investment Officer at GammaRoad Capital Partners, said technology stocks have been the primary driver of growth and market momentum during the recent rally and are also the most sensitive to interest-rate movements. As uncertainty surrounding the rate outlook increases, investors are taking profits in the sector.

Inflation data and the SpaceX IPO in focus

Friday’s stronger-than-expected US jobs report increased concerns that the Federal Reserve could raise interest rates later this year.

According to CME’s FedWatch tool, traders currently assign a 43% probability to a 25-basis-point rate hike in December.

Investors are now awaiting May consumer price index data, due on Wednesday, for further clues about the impact of higher energy prices linked to the Iran conflict on US inflation.

By 11:00 a.m. New York time, the Dow Jones Industrial Average had risen 131.61 points, or 0.26%, to 50,917.62. Meanwhile, the S&P 500 fell 16.10 points, or 0.22%, to 7,389.63, and the Nasdaq Composite dropped 176.07 points, or 0.68%, to 25,753.60.

At the same time, SpaceX’s expected market debut, with a projected valuation of $1.75 trillion, is being viewed as a key test for US equities amid concerns that investors may be overvaluing high-growth technology companies.

SpaceX aims to raise $75 billion through its IPO, making it the largest public offering in history.

Paul Nolte, Senior Wealth Advisor and Market Strategist at Murphy & Sylvest, said mutual funds and exchange-traded funds will likely need to make room for SpaceX shares within their portfolios.

In individual stock performance, advancing stocks outnumbered decliners by a ratio of 1.72-to-1 on the New York Stock Exchange and 1.32-to-1 on the Nasdaq.

The S&P 500 recorded 26 new 52-week highs and six new lows, while the Nasdaq posted 133 new highs and 84 new lows.

Bitcoin (BTC) traded little changed on Tuesday as investors weighed the prospects of a deal that could reopen the Strait of Hormuz against expectations of higher US interest rates following stronger-than-expected jobs data released last week.

Economic data and the interest-rate outlook

US Treasury yields rose sharply on Friday after data showed employers added far more jobs than expected in May, reinforcing bets that the Federal Reserve could raise interest rates later this year.

Thierry Wizman, Global FX and Rates Strategist at Macquarie Group, said: “Following Friday’s report, markets may have shifted from a growth-driven narrative to one centered on higher real yields.”

Investors are also awaiting US inflation data due on Wednesday for further clues about the Federal Reserve’s next policy move. Interest-rate futures currently imply a 70% probability of a rate hike by December, according to CME’s FedWatch tool.

Analysts noted that resilient economic growth and persistent inflationary pressures could continue to support expectations for higher US interest rates, even if a potential agreement between Washington and Tehran is reached.

Iran conflict

Iran and Israel announced on Monday that they would halt their exchange of attacks following a call from US President Donald Trump, although Tehran warned it could resume operations if Israel continues targeting Hezbollah in Lebanon.

Wizman added: “At the same time, the current state of ‘no agreement and no war’ between the United States and Iran may not last indefinitely.”

He further stated that the US administration could eventually seek to reopen the Strait of Hormuz by force, particularly if global oil inventories fall to critically low levels.

Bitcoin opened trading at $63,078.89, down about 0.3% from the previous session’s opening level, before slipping to $62,542.70 in early trading by 7:27 a.m. Eastern Time.

After a prolonged selloff last week, both Bitcoin and Ethereum have begun to show signs of stabilization at the start of the current week, supporting expectations that the market may be emerging from the weakness that pushed Bitcoin below the $60,000 level last Friday.

Cryptocurrencies as a diversification tool amid AI dominance

Analysts believe one of the key advantages of cryptocurrencies is their ability to offer investors an alternative asset class during periods of market disruption or shifting investment trends.

When the conflict involving Iran escalated, some investors turned to digital assets as an alternative safe-haven investment. Analysts now argue that cryptocurrencies may also provide portfolio diversification at a time when artificial intelligence-related stocks continue to dominate global financial markets.

Oil prices fell on Tuesday, surrendering most of the previous session’s gains after Iran and Israel announced a halt to their mutual attacks following a call from US President Donald Trump, although both sides warned that military operations could resume.

Brent crude futures declined by $1.55, or 1.6%, to $92.70 per barrel by 10:12 GMT, while US West Texas Intermediate crude fell by $1.93, or 2.1%, to $89.37 per barrel.

Tamas Varga, an analyst at PVM Oil Associates, said the market has “been through this scenario before,” referring to repeated hopes that the three-month-long conflict in the Middle East could be nearing an end, only for tensions to flare up again.

He added that prices weakened in the absence of new bullish catalysts after Iran and Israel confirmed a suspension of attacks, following a 5% rally on Monday driven by fresh Israeli strikes on Iran and attacks in Lebanon over the weekend.

Inventory concerns and weaker Chinese demand weigh on the market

Varga noted that global oil inventories continue to decline, warning that if stockpiles fall to critically low levels, Brent crude could climb back above $100 per barrel as competition for available supplies intensifies.

Despite the pause in attacks, Tehran continues to disrupt much of the shipping traffic through the Strait of Hormuz, which before the conflict handled roughly one-fifth of global crude oil and liquefied natural gas trade, while Washington maintains a blockade on Iranian ports.

Weak Chinese crude oil imports also added pressure to prices. Imports fell 29% last month to the lowest level in eight years. In April, imports dropped to 9.3 million barrels per day, compared with an average of 11 million barrels per day before the outbreak of the US-Israeli conflict with Iran, as Chinese refiners relied on drawing down inventories to offset supply shortages.

In a separate development, the US military announced on Monday that it intercepted an empty oil tanker in the Gulf of Oman after it attempted to sail toward an Iranian port in violation of sanctions and blockade measures imposed on Iran.