Tech companies are no longer waiting for electricity to become available. Securing future power now requires them to accept greater upfront financial risks.
The push to construct more AI data centers is straining power grids and hindering the expansion plans of the world's largest technology firms. AI infrastructure demands significantly more energy than conventional servers. New power generation facilities cannot be built quickly, leading companies primarily known for digital services to enter the energy sector directly.
In a significant move last month, Alphabet, Google's parent company, agreed to acquire renewable energy developer Intersect Power for $4.75 billion, plus assuming its debt. This marks the first instance of a tech company bringing an energy developer entirely in-house. The deal surprised the energy industry. "The market always thought [tech companies] would outsource because development is too nitty-gritty, kind of like the real-estate business," said Prashant Khorana, director of power and renewables consulting at Wood Mackenzie.
Other large tech firms, while not making full acquisitions, are increasing their involvement in energy projects. Amazon recently won a bankruptcy auction for a 1.2-gigawatt solar project with battery storage in Oregon, which is still in development. Earlier in 2024, Amazon agreed to fund early development work for a project by small modular reactor company X-Energy, in which it holds a stake. Last week, Meta announced it would fund the development of small modular reactors from companies Oklo and TerraPower.
This represents a shift from the more passive role tech companies previously played. Traditionally, external developers and investors assumed the risks of building projects, with financing secured by long-term power purchase agreements from the tech companies. That model was sufficient when companies sought such agreements mainly for environmental credentials, not urgent power needs.
Electricity access is now a primary constraint for expanding AI infrastructure. For Alphabet, this new approach turns energy into a capital expenditure, not just an operational cost.
The capital required for these energy projects is substantial. If Alphabet develops the multiple gigawatts of projects in Intersect Power's pipeline, it could mean billions in additional investment beyond the acquisition price. Alphabet and its peers are already spending record amounts on capital expenditures for AI. Visible Alpha estimates Alphabet's capex reached about $91 billion in 2025, nearly triple its average over the previous five years.
Meta and Amazon have not disclosed their specific financial commitments for the small modular reactor projects, but such early-stage development carries high risk and cost. Ted Brandt, CEO of investment bank Marathon Capital, stated that early development capital to assess a project's viability can range from $500 million to $600 million. These costs cover permitting, testing, engineering for regulatory approval, and site preparation.
Tech companies possess a natural advantage: large cash reserves and high credit ratings. Analysts at Jefferies noted that the Intersect Power deal "emphasizes the quantum of capital needed by project developers, and the appeal of simply raising this with the hyperscalers" compared to traditional funding routes. An industry banker said hyperscalers' cost of capital is lower than that of typical developers who must raise external equity and debt.
Among its well-funded rivals, Google's resources are the most extensive. The company holds about $141 billion in cash net of debt, the highest balance among its mega-cap tech competitors. According to S&P Global Market Intelligence, it also currently has the highest annual operating cash flow of any public company, at $151 billion.
Focusing on new energy projects also allows tech companies to avoid complex affordability issues that can arise when negotiating with existing power plants. On Monday, President Trump stated in a Truth Social post that his administration is working with tech firms to "ensure that Americans don't 'pick up the tab' for their power consumption." Alphabet specifically noted it purchased Intersect Power's development pipeline, not its operating assets, which were sold to other investors.
A potential downside is that if the AI sector slows, tech companies could be left with stranded assets beyond just data centers. However, the greater current concern for these firms is the risk of falling behind in the AI competition.