You’re Worried About the Wrong AI Problem

It seems everyone is thinking about artificial intelligence. Investors are putting trillions of dollars to work building data centers. Venture capital firms are writing checks for AI startups, one of the few sectors that can still secure meaningful venture funding relatively quickly. And every cohort of society is viewing the impact of AI from their unique perspective. 

Young adults are worried about entry-level jobs disappearing. Mid-career professionals are being told to adapt, adopt, or get out of the way. Corporate boards, never wanting to appear caught off-guard, are seeking AI-powered productivity gains.

Last week I heard about retirees leveraging AI to build financial retirement models, design personalized workouts, and hunt down Black Friday deals on Burgundy. It’s remarkable, really. AI has become ubiquitous. Trusted? Not exactly. But ubiquitous.

Some people fret about Hollywood scenarios—AI taking their jobs, Terminator-style rogue algorithms, existential threats. But Steve Lord, someone with a genuinely unique vantage point into the world of venture capital, thinks we’ll hit a different wall first.

“We are going to have a power problem with AI long before we have a Terminator-type scenario,” Steve told me during our latest Global Macro Update interview. “We’re not going to be able to generate the power necessary to run all this.”

Steve is COO at Burkland Associates—a firm providing fractional CFO services to hundreds of VC-backed companies. That position gives him a front-row seat to the startup ecosystem. His team works with dozens of top-tier VC firms. He sees what’s coming before most people do. And what he sees is a massive bottleneck around electricity.

The data backs him up. According to Pew Research, a typical AI-focused data center consumes as much electricity as 100,000 households. The larger facilities under construction could use twenty times that amount. The International Energy Agency projects that data centers will account for nearly half (half!) of US electricity demand growth through 2030. A RAND Corporation report found that AI data centers could require 68 gigawatts of power capacity by 2027—close to the current total power capacity of California.

It’s already happening. The Electric Power Research Institute reports that in 2023, data centers consumed 26% of Virginia’s total electricity supply and significant shares in North Dakota, Nebraska, Iowa, and Oregon. Bloomberg recently reported that wholesale electricity prices near data center clusters have risen as much as 267% since 2020.

These costs get passed on to households. One Carnegie Mellon study estimates that data centers and crypto mining could push the average US electricity bill up 8% by 2030—and more than 25% in high-demand areas like Northern Virginia.

Where will all this power come from?

Lord sees entrepreneurs rising to meet the challenge. The option attracting the most VC-stage investment appears to be small modular nuclear reactors (SMRs).

“We’re talking with firms that are trying to get into the nuclear reactor business,” Lord said. “DoD is looking at it. Amazon, Microsoft—looking at captive reactors makes sense when you realize what they’re trying to run.”

Several mega-cap tech companies have announced nuclear power purchasing agreements. Three Mile Island is being restarted specifically to supply data center power.

The market is pricing this in. The utility sector has posted solid gains over the past two years as investors finally recognize that electricity demand is about to get a lot more interesting. Meanwhile, consumers are already feeling it. The average national electricity bill has jumped 40% over the past five years.

My conversation with Steve went far beyond AI’s power requirements. We also covered:

• The current state of venture capital and why deal making has gotten harder

• What investors in venture capital should prepare for

• What founders need to know before trying to raise money

• What happened to crypto’s original promise—and where blockchain technology landed

• Why the US has structural advantages in innovation that other countries cannot replicate

Click here to watch my full conversation with Steve Lord. A transcript of our conversation is available here.

Learn more about Steve Lord and Burkland Associates here.

I’ve known Steve for 37 years. The man has an uncanny ability to spot trends before they become obvious. He understood bitcoin’s potential when most of us were still skeptical. He told me to buy bitcoin at $300. I didn’t, and I’m still working. So is he, as you’ll hear in our conversation.

Steve is part of an extended group of friends from my undergrad days at UVM. Four years on campus in the late ’80s built bonds that apparently last a lifetime. We all scattered after graduation. Careers happened, families happened—and then one day you wake up and realize your kids are grown, your business is running well, and you can actually breathe.

Last night I had dinner with Steve and several others from that same era. There’s something about getting older that clarifies priorities. You realize you’ve been saying “no” to most invitations, and the cost of that habit is time you can’t get back.

So now I force myself to say “yes”—to dinners with old friends, to new connections, even if it means hours of travel. The research is clear: robust social ties correlate with years of additional life.

My hope is you’ll do the same this holiday season: Reconnect with people who matter. Say yes more often than you normally would. Your future self will thank you.

Thanks for reading and watching. Your support of what we do here at Mauldin Economics is truly our source of energy.

Thank you for reading and watching.

Ed D’Agostino

Partner & COO