UTILITY

Electricity Is In a Bull Market: Here’s What AI Companies Are Doing To Hedge Against Energy Uncertainty

Let’s shed some light on the electricity industry’s recent surge. Thanks to advancements in artificial intelligence (AI), data centers, and the electrification of just about everything, the industry is experiencing its first significant upturn in decades. In December, US grid planner Grid Strategies reported that the era of flat power demand was over — predicting a nearly doubled demand for electricity over the next five years.

That’s welcome news for electricians, energy titans, and power producers — but raises concerns for American consumers and businesses, who may face higher electricity prices if sufficient power facilities aren’t built. Fortunately for big tech, money talks — and companies have found a workaround to paying the price everybody else pays.

They’ve got the power: Concerned about securing enough electricity for their energy-intensive AI data centers, tech giants are lining up deals with the less-regulated independent power producers (IPPs) who sell energy to the highest bidder. Andy DeVries of Credit Sights notes that this trend could signal “rising power prices.”

• In recent years, companies like Microsoft ($MSFT) and Google ($GOOG) have signed power purchase agreements with clean energy and nuclear energy producers — part of an effort to offset their fossil fuel use.

• Earlier this month, Amazon ($AMZN) partnered with nuclear-power producer Talen Energy ($TLNE) to power one of its data centers — paying a ~50%+ premium over market rate.

Rise of the independents

According to S&P Managing Director Aneesh Prabhu, companies capable of selling power are “bound to experience tailwinds as power demand rises,” which is one reason why publicly traded IPPs are finding fans on Wall Street — with investors anticipating more major power deals on the horizon.

• Constellation Energy ($CEG), which owns the largest US nuclear energy fleet, has rallied over 60% year-to-date — making it the S&P 500’s third best-performing stock behind Super Micro ($SMCI) and Nvidia ($NVDA).

• Shares of other IPPs, such as Vistra ($VST) and NRG Energy ($NRG), have seen gains of nearly 30% and 77% YTD, respectively.

Early days: This newfound attention marks the first time in 25 years that many IPPs have seen significant interest, and their boom may continue, AI bubble or not. Vistra trades at just 8x its forward EBITDA (compared with 13.8x for the rest of the green and renewable energy industry, according to NYU Stern.) Further major deals could unlock additional value for these companies.

Read: There Isn’t Enough Water and Electricity To Power Data Centers, America’s Next Gold Rush

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LARGECAP RECAP

💳 Payment giants will cap transaction fees as part of massive settlement

Visa ($V) and Mastercard ($MA) raked in over $100B from credit card swipe fees last year, but their banner revenue has been repeatedly jeopardized by legal battles. In 2019, both companies shelled out $6B following a class-action lawsuit claiming their networks were anti-competitive — and today, rather than fighting another case against merchants, they’ve decided to settle.

• After two decades of legal theater, both companies agreed on Tuesday to limit credit card swipe fees — a deal that could save US retailers “at least $30B over five years.”

• This agreement allows retailers to charge a surcharge at checkout for customers using Visa or Mastercard credit cards, or they could steer them toward cheaper alternatives.

Banks, take this L: This settlement is one of the largest antitrust settlements ever, but it won’t only impact the payment giants — it’s also likely to dent the revenues of issuing banks like JPMorgan Chase ($JPM), Bank of America ($BAC), and Citigroup ($C). These banks could see billions less due to the reduced swipe fees at checkout.

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Markets & Economy

Disney ($DIS) proxy battle set to be a nail-biter: Two of America’s largest proxy voting firms, which could cast up to 80% of the votes, have differing views on next week’s Disney shareholder vote — while Glass Lewis is riding with Disney CEO Bob Iger, competing firm ISS says they should elect activist Nelson Peltz to the board. [Read]

NYSE suspends trading of EV company Fisker ($FSRN): The embattled carmaker has been trading under $1 for over a month now — and Fisker’s deal with a major automaker falling through on Monday certainly didn’t help matters. [Read]

Could Biden be making a comeback? Swing state polls have tilted in Biden’s favor over the past month — particularly in Rust Belt states. But Trump maintains a sizable lead in Arizona and North Carolina, leading the swing state balance at 47-43 in favor of Trump. [Read]

Business & Wealth

McDonald’s ($MCD) will sell Krispy Kreme ($DNUT) nationwide: “Would you like a donut with that?” Americans apparently do, as the partnership that started at select stores in 2022 is now going national — sending Krispy Kreme’s shares soaring. [Read]

Amazon ($AMZN) to offer same-day pharmacy shipping in NY, LA: The tech giant plans to expand the effort to over a dozen cities by the end of 2024, signaling the company’s growing presence in health and medicine. [Read]

New Labor Department rule could protect your retirement savings: It would require financial advisors to act as fiduciaries — which holds financial professionals to the highest standards of care when handling other people’s money. [Read]

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DIGIT OF THE DAY

California Fast-Food Workers Set For 25% Wage Boost, So Chains Are Gutting Employees and Automating

Beginning in April, California fast-food employees at large chains with 60+ locations will see their hourly pay increase from $16 to $20… assuming they haven’t been canned by then. A recent survey by the Center for Union Facts indicates that only 41% of workers expect their total earnings to go up, while 46% foresee fewer working hours and 40% predict staff cuts.

• Major chains like McDonald’s ($MCD) and Chipotle ($CMG) are preemptively raising prices to offset the wage hike — others are turning to automation like frying robots and automated drink dispensers.

• Smaller chains, unable to make significant investments, are laying off workers and relying more on external delivery services.

Classic debate… How will minimum wage increases impact employment and overall earnings? Leading up to the change, California has already seen a 1.3% decrease in the number of workers as of January compared to last September. In December, Pizza Hut said it would lay off 1.2K drivers in favor of using third-party delivery apps, and some chains are shifting expansion plans outside of California. While Uber drivers still have work (for now), just wait until the food-delivering robots and self-driving cars arrive.

Read: It’s Not Just You, Your Coworker Is A Robot: Why Companies Are Embracing the Humanoid Hype