Venture capitalists have significantly increased their investments in AI startups, pouring over $500 billion into the sector in the last half-decade.
However, the most strategic AI-related investment currently might be in energy infrastructure, according to a recent Sightline Climate report. Researchers discovered that up to 50% of announced data center projects face potential delays, with power access being a primary obstacle.
Out of 190 gigawatts (GW) worth of data centers being tracked by the company, only 5 GW are actively under construction. Last year, approximately 6 GW of data center capacity from Sightline’s database became operational. A considerably larger proportion, around 36%, experienced timeline shifts in 2025. These holdups could eventually impact major enterprises and other businesses relying on AI.
This imbalance between supply and demand presents an opportunity for investors. Here’s why.
Major technology firms such as Google and Meta are dedicating substantial financial resources to develop solar, wind, and nuclear energy initiatives. These companies are also backing emerging technologies like Form Energy’s 100-hour battery through direct investments and collaborating with utility providers to hasten their implementation.
Numerous startups are focused on developing solutions to the power challenge. For example, Amperesand, DG Matrix, and Heron Power are innovating new power conversion technologies, while companies like Camus, GridBeyond, and Texture are creating software to manage electricity flow.
Power scarcity remains one of the most significant restrictions for data centers, a situation unlikely to change soon. AI is projected to increase data center power consumption by 175% by 2030, according to Goldman Sachs.
These unprecedented grid shortages are driving up electricity prices nationwide, prompting many tech companies to explore alternative power sources for their data centers. (The current administration, anticipating a potential political issue, is encouraging AI companies to either establish their own power generation, accept higher rates, or both. Most had already planned for such measures.)
Alternatives to the Traditional Grid
Amazon, Google, Oracle, and other major tech firms are actively working to lessen their reliance on the conventional power grid. Several new data centers are being designed to use on-site power generation or a hybrid model combining on-site power with a grid connection.
The largest data centers are spearheading this transition. Less than a quarter of projects that have identified a power source will utilize on-site or hybrid methods, yet these represent 44% of the total capacity.
This shift is partly due to shortages of power generation equipment, specifically gas turbines, and an outdated grid. This has paved the way for alternative energy solutions.
Google’s recent agreement to power a new data center in Minnesota illustrates one approach to this challenge. The company plans to integrate wind and solar power with a substantial 30 gigawatt-hour battery from Form Energy. Google also collaborated with Xcel Energy to develop a new rate structure designed to encourage the adoption of novel technologies in the utility’s future planning.
Form Energy’s battery is just one example; grid-scale batteries are poised to capture a significant share of the power market. By the end of this year, the U.S. is expected to have nearly 65 GW of battery storage capacity, according to the U.S. Energy Information Administration. Like many of its competitors, Form Energy aims to capitalize on this momentum by seeking a $500 million funding round in anticipation of a future IPO.
Underestimated Technologies
Energy supply is only part of the equation. Once power reaches the grid or a data center, it requires management, a role largely handled by the essential transformer.
Most modern transformers rely on large iron blocks wrapped in copper wire, a technology that has been around for about 140 years. While dependable, it’s becoming excessively bulky as data center power requirements escalate. One expert informed TechCrunch that when server racks achieve 1 megawatt of power density, the necessary power equipment will occupy twice the space of the rack itself.
This is why investors have recently been eager to support solid-state transformer startups, which aim for silicon-based power electronics to supersede the antiquated iron-and-copper technology. Although more costly than current transformers, their flexibility allows them to replace multiple pieces of equipment within a data center, potentially making them cost-competitive.
Overall, the investments made in battery and transformer companies have been considerably smaller than some of the headline-making rounds seen in the AI sector.
This is not a drawback—these smaller rounds are more manageable for investors. Furthermore, as the world increasingly electrifies everything from transportation to heavy industry, the demand for power will only grow, providing investors with a safeguard against a potential AI downturn. Perhaps the most astute AI investment isn’t in AI itself.