John Norris (00:30):
Well, hello again, everybody. This is John Norris at Trader Perspectives. As always, we have our good friend Sam Clement. Sam, say hello.
Sam Clement (00:36):
Hey John. How are you doing?
John Norris (00:36):
I’m doing fantastically. I hope you’re doing well.
Sam Clement (00:39):
I cannot complain.
John Norris (00:40):
You know who’s doing pretty well right now?
Sam Clement (00:41):
I think a lot of people are doing pretty well.
John Norris (00:42):
A lot of people are doing pretty well, but especially those people that own land on which there is now a data center. I would
Sam Clement (00:49):
I would definitely include those people.
John Norris (00:51):
So, in case you have really been under a rock in a cave, maybe you went trekking in Nepal or Bhutan or something like that. You have really been out of pocket. You have probably read something somewhere or heard someone talk about seeing it on television, about data centers and how the economy and tech companies are spending billions upon billions to build these things out, essentially building the technological infrastructure for, shoot, I guess the 22nd century or something along those lines.
And strangely enough, something weird happened. A lot of people were pushing back on these things, these big projects, citing higher costs of electricity and environmental concerns and who’s winning, who’s losing, all that stuff. Again, the old economics-as-a-zero-sum-game type thing, which it isn’t.
(01:44):
But before we get to all that, Sam, let’s just start off easy here and we’ll give you a softball. I mean, this isn’t even a softball. This is a beach ball. It’s coming right at your way of giving you a baseball bat. You can swat it.
Sam Clement (01:55):
Okay.
John Norris (01:55):
Why are so many businesses building data centers?
Sam Clement (01:59):
Money.
John Norris (01:59):
All right. Question number two.
Sam Clement (02:02):
But no, it is the talk of the town with finance right now. And that’s from the hyperscalers down to the picks and shovels to the chip manufacturer. I mean, it’s so all encompassing right now, especially in the industry that we’re in and the stock market and the impact it has. So it’s money is the short answer of it.
John Norris (02:24):
Well, it’s money, and sometimes you just get lost in the headlines. There are so many headlines coming out talking about a data center here, a data center there. XYZ Company is going to spend this many billions of dollars. That just starts to numb me out a little bit. But then you have to start thinking about the multiplier effect and the tentacles that has. I’m going to throw out a number: a 100,000-square-foot facility that they’re putting up someplace in northwest Indiana, which seems to be a pretty popular place. The state is going after those things. It doesn’t sound like that much, but you have to understand, that’s a lot of people working there. That’s construction jobs, engineers, architects, all that stuff. And it is good stuff. I’m prone to say that. So when one of the big tech names announces a billion dollars here, a billion dollars there, it starts to add up to real money and real jobs by the time they get down to the dirt level.
Sam Clement (03:16):
It is amazing how almost numb, at least I’ve become to the numbers that are mentioned. I think we’re talking 10 billion. It’s like, oh, it’s not too much. And then you’re like…
John Norris (03:29):
Whoa, that’s. And just how big some of these things are.
Sam Clement (03:31):
Yeah.
John Norris (03:32):
And it’s kind of amazing, but the thing is, the reason we have so many data centers and the reason we’re talking about it, and why it’s really come to the fore with AI, is because AI’s accelerated computing uses so much data and so much electricity.
We were using a ton of space out there previously. Every time you take a picture on your phone and put it in the cloud, the cloud goes somewhere. It goes into a data center. So all this stuff has to be housed somewhere, I guess.
I don’t exactly understand how it all works out, but all this stuff needs more space. Shoot, you don’t remember this, but back during the mid-to-late ’90s, they were tearing up streets all around to put fiber-optic cable underneath city streets in order to accommodate the internet and all that.
(04:14):
Now they’re doing this. One of the things that has people in a lather, you hear people complaining about, is electricity. Electricity costs are going to go up.The thing is, it seems as though electricity, not chips or memory, is now becoming the biggest constraint to the construction of these new places. For me, I think it’s kind of comical. This is going to sound nasty. I’m going to give you a caveat right now. My mother did not raise me to feel this way, but I’m going to throw it out there. Sam, some of these people complaining about data centers and the high cost of electricity don’t look as though they have electricity themselves. Your thoughts on that?
Sam Clement (04:58):
Sure. Have not though about that angle.
John Norris (05:02):
Left you a little speechless there.
Sam Clement (05:03):
Yeah, a little bit. But no, this reminds me, I mean, a year plus ago, for years we’ve talked about the grid being an issue. We’ve talked about it with whether it was California’s laws about electric lawnmowers.
John Norris (05:18):
Well, I mean, again, just everything has to be renewable and all that stuff. I was thinking we would have issues with the grid being just consumer demand, just swamping the available supply, not necessarily business and technological demand.
Sam Clement (05:33):
Right. So demand for power and electricity, it is not a new conversation just related to AI. This is the new source of demand for it. And so it is really just maybe expediting that concern that people have had for quite some time about our outdated grid. So it is not necessarily an AI thing, but that is you see the amount of power that goes into these facilities. And we’ve already talked about how outdated our grid is and blackouts and what happens in Texas and California with weather events and what have you and blackouts. And it’s already been an issue and it’s just going to become a bigger issue.
John Norris (06:11):
Well, and when you take a look at some of the size of these facilities, I mean, I forget, 1.5 gig. I don’t even know the numbers. They’re just massive. The size of some of these data centers, do you think that they can rely on the wind or the sun in order to ensure that they have a constant source of power?
Sam Clement (06:30):
Not yet, at least. I know solar –
John Norris (06:32):
You’re not an electrical engineer, that’s your caveat.
Sam Clement (06:34):
I’m not an electrical engineer. I think solar is becoming a bigger and bigger part of it and storage for solar is
John Norris (06:41):
Obviously – It’s getting better.
Sam Clement (06:42):
Is getting better. And I believe California is doing a ton and getting a lot of solar onboard online.
John Norris (06:47):
Sunshine’s a lot.
Sam Clement (06:49):
And Elon Musk is famously very pro-solar talking about if we can only capture. But the short answer is no, we are not at a point where solar and wind can even come close to.
John Norris (07:00):
So what does this mean for. I mean, what we’re talking about is the demand curve for electricity is going to shift out to the right, right? That’s what we’re talking about. And supply’s not moving.
Sam Clement (07:14):
At least at the same rate.
John Norris (07:15):
So prices will have to go up. Is it fair to say that part of the reason these people get so exercised is they don’t want the data center coming into their area and driving up the cost of electricity, under the assumption that electricity doesn’t move about the economy?
Sam Clement (07:31):
Yes. That’s just Economics 101, right? When demand outpaces supply, you’re going to see prices go up.It is obviously a concern, and there’s talk of whether it’s going to impact consumers versus just data centers or what have you. But that has very much been one of the biggest pushbacks of data centers and the AI trend, the consumption of energy by them.
John Norris (07:56):
Yeah. So I guess we get to the point where I don’t see any way around it. We’re going to be consuming more energy unless we figure out a way to do all of what we want to do with data storage, accelerated computing, AI, and all that stuff using less electricity.
We’re just going to need more electricity. I don’t see any way around it. Or we could just try to put that back in the box, and I don’t think anyone’s advocating for that. Are they?
Sam Clement (08:26):
No, I don’t think anyone’s necessarily against data centers.
John Norris (08:31):
It’s NIMBY, isn’t it?
Sam Clement (08:32):
It’s a lot of it. It’s concerns about the environment. It’s concerns about water consumption, power consumption, where they’re building them, and what is being destroyed to build. There’s all these different groups of concerns, but I don’t think the root of most people’s is that there’s a data center itself.
John Norris (08:52):
Well, and I use the phrase NIMBY in case you’re not familiar with it. It’s N-I-M-B-Y, not in my backyard. And I think that really does kind of. I think that brings a fine point to it. You against data centers?
Sam Clement (09:08):
Not directly.
John Norris (09:09):
I say data, data. What do you call it?
Sam Clement (09:12):
Data.
John Norris (09:13):
Yeah, data. I guess it just kind of like data centers. Would you want one next to you in your neighborhood in Homewood?
Sam Clement (09:21):
I would not want one next to my house.
John Norris (09:22):
And so that’s the whole deal. The people who are adamantly against this, we had people in west Jefferson County darn near rioting about the proposed data center out there, and there’s hardly anyone living out there. But the people who do live out there got very upset about potential higher electricity prices. That data center is going somewhere. It’s probably going up somewhere in Alabama. So if you have demand for electricity going up in Alabama, I’ve got to tell you, prices are going to go up. But what is the alternative here? And this is where it kind of takes us. Who truly wins economically on these things? Is it economically important to have data centers in your area? Who wins here? Is it the local economy? Is it the company?
(10:10):
It’s just like, what is the economic benefit, truly? People understand when their utility bill goes up. People understand when their water bill goes up, or the price per square foot or cubic meter, whatever we get charged. People understand that, but they might not understand some of the esoterics of overall economic development. So who wins on these things?
Sam Clement (10:30):
Well, hopefully this answers it somewhat, but that’s what’s been so interesting with the data center story in the stock market: how many different industries downstream from the actual data center developer, or the hyperscaler, are benefiting from it. There has to be a construction company that builds it. There have to be companies that handle cooling systems. There are all these parts and pieces that go into them, and you’re seeing a lot of different groups and industries benefiting from it. But I think the hesitation, going back to that, is that we’re still relatively early in this process. These are long-term promises of benefits. And I think a lot of people’s hesitation comes from not knowing what the end result of this is going to be.
John Norris (11:26):
I would tell you, I’ve read a couple of good articles. I wish I could cite them here, but I can’t remember them. So I’m just going to say, “Hey, go out there and search yourself.”
I read a couple of good articles, and they made a very good point, a salient point, if you will, that when a data center is close to a metropolitan area, it is economically additive to the local economy. However, when a data center is in a rural area, it’s almost economically neutral.
The reason for that is when you put something up, say the one we’re putting up in west Jefferson County, the one we’re putting over in the Oxmoor Valley, all that stuff is in the Birmingham metropolitan area. There are about 1.2 million people walking around. Our media market is close to about 1.5 or 1.6 million. It’s relatively well diversified.
(12:14):
It’s another cog. It’s another piece in that jigsaw puzzle. Creating it, we need general contractors. We’ve got a bunch of good ones here in town. We need subcontractors, electricians, construction workers. And we need people to service all these people.
So when you have all that stuff in there, it’s just more demand in the local economy.
Let’s say I’m going to pick on some place. Marion, Alabama, down in Perry County. Listen, they’ve got some lovely old homes there. Everyone I’ve met from Marion is very nice. However, there’s not a lot of infrastructure around there.
You can say they’re going to have to build it out and all that stuff, but the truth is the general contracting firm isn’t in Marion. It isn’t in Perry County. It’s in Birmingham or Tuscaloosa.
(13:00):
The electrical contractors, the workers, all this stuff, they’re in Tuscaloosa, they’re in Birmingham. Essentially, it’s good business for Birmingham, but in terms of the people working on and maintaining the facilities, the local economy is so thin in some of these rural areas that it doesn’t benefit them as much because all the capacity is imported from someplace else. It comes in during the day and leaves at night, if you catch my drift. So there’s not the same sort of multiplier effect. I would say, in terms of communities, who really wins? Well, it’s those local communities that already have a well-diversified economy. This is just throwing more demand on top of an already vibrant economy that’s already well diversified. Data centers here are fantastic. It’s just another piece of the jigsaw puzzle for overall economic health. For those rural communities or disadvantaged areas that are looking for a data center to come in and change the world, they’re going to be horribly disappointed by that.
Sam Clement (13:56):
I don’t disagree.
John Norris (13:59):
So, in terms of it, I kind of touched on a lot of this. Who wins? A lot of people win. Construction firms win. People who are technical consultants, electricians, all these people win. And the local economies, if they are already established, win. But those people who are out in the sticks, for lack of a better word, or in poor areas where you’re importing the capacity and exporting it at night, probably not a lot of help there. So another concern, outside of just the electrical side and whether it’s going to be good for the local economy, is, as you’ve kind of hit on, what’s the environmental impact of these things? I mean, there’s absolutely no way you can build anything, it doesn’t matter what it is, that consumes that much energy and have it be great for the environment. So what are the environmental concerns about data centers?
Sam Clement (14:48):
I think, in general, sound is an obvious one, and that’s been in the news a lot. Heat is an obvious one. When you think of anything that is that large and needs that much power, those are two big things that go along with it. Water to cool it is another one. So again, we’re so early in this process. Even when we talk about the dollars being spent, the amount of power and the amount of water these facilities use is really hard to grasp. Some of these use more power than the rest of a city. Yes, the city they’re in. So this facility, where not many people are actually at during the day, is still, I think, in a lot of ways…
John Norris (15:27):
Got a hundred people walking around just maintaining.
Sam Clement (15:32):
Yeah.
John Norris (15:33):
And it’s consuming as much energy as, I mean, some of these things –
Sam Clement (15:36):
Hundreds of thousands people in some cases.
John Norris (15:37):
Even, excuse me, a relatively modest one will consume the electricity of a 30,000 person small city.
Sam Clement (15:46):
Yeah.
John Norris (15:47):
So I’m sorry I interrupted.
Sam Clement (15:48):
No. And again, so there’s these concerns. We know when there’s that much use, there’s going to be some impact. What the end result is, I think is where there’s people want clarity and they want answers when things are in their backyard.
John Norris (16:02):
Well, I’ve read some people, perhaps people are just alarmist saying, “Going to use all the water around here. It’s going to dry up the water tables. The creeks are going to run dry.” All of that stuff. What is the likelihood of that?
Sam Clement (16:15):
I don’t know. That’s the short of it is I have no clue what the long-term impact of that’s going to be.
John Norris (16:21):
All right. I’m going to tell you what I think.
Sam Clement (16:23):
Okay.
John Norris (16:23):
Well, you knew that was coming anyhow.
I would say that right now, these data centers probably aren’t very good at collecting evaporation. From what I understand, of the water they use, about 70% is fully used or consumed and gets evaporated. That’s what happens when you use this stuff up. It evaporates. It goes up into the air as a gas and comes back down later in the form of rain. But in the short term, it’s consumed. The other 20% to 30%, thereabouts, turns into wastewater. That goes back into the water treatment facilities and all that stuff. So if it’s using a million gallons a day, or a million and a half, let’s say a million because it’s easier for the math, 700,000 gallons turns into water vapor. Three hundred thousand gallons goes right to the water treatment facility. And so that 700,000 gallons that goes into the air as water vapor will eventually come back down to Earth, but that might not help with the short-term impact on the water table or even the creek beds.
(17:25):
I would tell you, it’s going to be a short-term problem. I don’t want to wait for it to rain. I don’t want my water to go down like that. However, the more pressure there is on water tables, the more clever businesses will be in order to come up with either waterless systems or some other more creative way in order to trap or enclose all that water vapor within the facility itself and they’ll be able to be able to collect that much more. Let’s see, what’s the old expression? Necessities is the mother have invention. We were going to run out of fossil fuels. When I was a kid, we were going to run out of fossil fuels. We weren’t going to have any creative…
Sam Clement (18:01):
Now we’re finding pockets bigger than all the net.
John Norris (18:04):
I mean, all of it. We were going to run out of that stuff. So there’s a buck to be made and when you unleash people’s motivation for profit, you will come up with ways to save and create and all that stuff. So I would say short term, that might be a legitimate concern. Longer term, I’m fully convinced that, listen, if these people are as smart as they can do to create AI and some of the technology wizardry that we’re talking about now, truly science fiction, they can figure out a way to trap some water vapor inside the facility.
Sam Clement (18:33):
Well, and it begs the question, where in the cycle of these buildings are we?
John Norris (18:38):
Yeah. Where do you think we are? Are we at the beginning of it? I mean, it seems so crazy to think that we’re at the beginning of our infrastructure build out for AI.
Sam Clement (18:46):
That you see some headlines that will make you feel as if this is the very end of it. It’s all in. And then you’ll see others where it’s in commentary from companies and what have you, where it makes you feel as if you’re at the bottom of the first inning of it. And so the thing is –
John Norris (19:06):
The truth is almost always someplace in the middle.
Sam Clement (19:07):
Well, where I think we are is we’re getting later in the stages of the buildout, and we’re still in the very, very, very early stages of the end results of AI, the productivity of it, the efficiencies of it, and the profitability of it. I think the buildout side of it and the results side of it are on two different timelines, right? As we’re seeing the buildout, we’re heavily underway with that. And we are very, very early on in what the end results of all this AI capacity looks like for the U.S. economy, the U.S. consumer, and the U.S. worker.
John Norris (19:43):
Ultimately, I’d say it’s a good thing. What are your takes on it?
Sam Clement (19:47):
On AI as a whole?
John Norris (19:48):
Or just on all this build out of data centers and the need to store all this data.
Sam Clement (19:55):
I keep on saying data. It’s like looking at it from a market perspective, it is clearly we’ve talked about tech, we’ve talked about concentration, the non-technically tech companies that are still AI benefactors. It is so large and so powerful for the markets right now. It’s kind of hard from that aspect to hope it doesn’t work out.
John Norris (20:19):
Oh, listen. I think it’s going to work out. It doesn’t mean that it’s always going to be go, go, go. The growth rate will slow down at some point, as it has to, and it will. But I will tell you that the more capacity we build out for this type of stuff, the better it is long term for our technological development. That’s going to help us remain a very vibrant economy, in my estimation. Some people are going to get left out. It always happens. But we need to do a better job of training our workforce for the remainder of the 21st century and going into the 22nd century. I can’t believe we’re talking about the 22nd century, but it’s 75 years away. Well, 74. So when you take a look at it, anyone that’s in local politics, anyone that does this, sit there and says, “Okay, listen, I hate data centers.
(21:11):
I want one in my backyard.” However, we’re talking about them, and they’re here. When you see them, you can kind of get a whiff of what the future is. Then go and take a look at what you’re teaching your kids in school. You tell me whether what you’re teaching in your local school is going to meet the needs of those people coming in and building a data center in your backyard. Chances are there’s probably a mismatch there. So if nothing else, what this teaches us is a very important lesson: We have got to get serious about training our workforce here in the United States for a technologically driven economic future.
Sam Clement (21:49):
Lot’s changing.
John Norris (21:50):
A lot is changing.
All right, guys, thank you all so much for listening. We always love to hear from you. If you have any comments or questions, please, by all means, let us know. You can always drop us a line at , or you can leave us a review on the podcast outlet of your choice. As always, if you’re interested in reading more, hearing more of what we have to say, or how we think, you can always go to oakworth.com, O-A-K-W-O-R-T-H.com. Take a look under the Thought Leadership tab and find access to all kinds of exciting information, including links to previous podcasts, links to our newsletter/blog, Common Sense, links to our quarterly analysis pieces, as well as everything that Mac Frazier and the advisory services team, along with some of our wealth client advisors, put out there. Plus, there’s also a lot of good stuff about our banking services as well.
(22:33):
All right. With that being said, and boy, I said that in double time. I’m now going to throw it back to you, Sam. Give us some other stuff on this. So other thoughts here.
Sam Clement (22:41):
That’s all I got.
John Norris (22:41):
Okay. Very exciting topic. There you go. That’s all I’ve got today. Y’all take care.
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