Big Tech has a problem thanks to energy-gobbling AI. These stocks may help solve it

Published Fri, Jul 12 202410:06 AM EDTUpdated Fri, Jul 12 202411:27 AM EDT

The tech sector faces a moment of truth in its ambitious climate targets, as the growing power needs of artificial intelligence data centers jeopardize the industry's promise to slash carbon emissions. Alphabet 's Google unit reported last week that its greenhouse gas emissions rose 13% in 2023 compared to the prior year, "primarily due to increases in data center energy consumption and supply chain emissions." Google admitted in its most recent environmental report that "reducing emissions may be challenging due to increasing energy demands from the greater intensity of AI compute, and the emissions associated with the expected increases in our technical infrastructure investment." Microsoft disclosed in May that its indirect emissions rose 31% compared to 2020, primarily due to "the construction of more datacenters and the associated embodied carbon in building materials." Goals at risk The energy needs of AI computing pose a significant challenge to Google and Microsoft's ambitious climate goals. Google aims to achieve net-zero emissions by 2030 through around-the-clock carbon-free energy on every electric grid where it operates. Microsoft wants to become carbon negative in the same year, matching 100% of its electricity consumption with carbon-free energy and investing in carbon removal technologies. Whether this remains possible is unclear. Google and Microsoft, for example, have not pushed back their climate goals. But at the same time, forging ahead with energy-intensive generative AI is a commercial imperative for Microsoft, Keith Weiss, Morgan Stanley's U.S. software analyst, told clients in a Thursday note. Morgan Stanley is recommending a suite of stocks — AES Corporation , Bloom Energy , Legrand , Schneider Electric , Holcim and Sika — that can help the tech sector move away from relying on fossil fuels while also building out its data centers. The investment bank rates all but one the equivalent of a buy. Schneider is rated neutral. AES Corporation has large portfolio of renewable energy assets, is a leader in the battery technology that is crucial for dispatching and storing wind and solar power and is a major supplier to tech companies. Bloom Energy makes fuel cells that can run on natural gas or hydrogen. The cells are installed on-site at facilities including data centers and can operate independently of the power grid. Holcim and Sika offer construction solutions that improve energy efficiency and promise to reduce the carbon footprint of buildings. Schneider Electric and Legrand help make data center servers more efficient through power management and temperature solutions. HCMLY YTD mountain Holcim ADRs in 2024.