Goldman Sachs: AI Expansion and Geopolitical Risks Drive Continued Strength in the 'Reliability' Supercycle
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Goldman Sachs: AI Expansion and Geopolitical Risks Drive Continued Strength in the 'Reliability' Supercycle
After visiting the U.S. West Coast, Goldman Sachs’ team believes that surging demand for AI computing power combined with global supply chain restructuring is driving a supercycle of investment in power, infrastructure, and critical materials. They recommend focusing on leaders in solar energy, nuclear power, and semiconductor equipment.
- AI and data center construction are driving the strongest growth in U.S. electricity demand in nearly 30 years.
- Companies are accelerating redundancy to mitigate geopolitical risks, supporting continued growth in green capital spending.
- First Solar, benefiting from technological iteration and policy tailwinds, is poised for higher pricing and profits.
- Nextpower expands its project share through diversification strategies, with non-tracker businesses showing significant growth.
- Small modular nuclear reactor companies like Oklo benefit from baseload power shortages, though fuel supply remains a bottleneck.
- MP Materials has secured a central position in the North American rare earth supply chain amid geopolitical friction.
Report interpretation
Overview
This report, based on recent field visits by Goldman Sachs analysts to Arizona and California with nine key companies, delves deeply into the investment logic behind the 'Reliability' theme. The report points out that driven by factors such as AI expansion, geopolitical tensions, aging infrastructure, and extreme weather, electricity demand in the U.S. and Europe is accelerating. This demand is not only reflected in the explosive growth of data center power consumption but also extends to semiconductor manufacturing capacity expansion and shifts in residential electricity usage patterns. The firm believes that the current 'Reliability Supercycle' will continue to drive massive capital expenditures in power infrastructure, critical raw materials, and cybersecurity, with leading companies in these sectors set to benefit long-term.
Core views
Demand Side: AI and Industrial Expansion Reshape the Electricity Landscape The report emphasizes that the explosive growth of AI computing power is the core engine driving electricity demand. Goldman Sachs forecasts that global data center electricity demand will grow by 220% by 2030 compared to 2023, with about 60% of this growth coming from the U.S. Meanwhile, capital expenditure plus R&D spending by hyperscale tech companies is expected to exceed $1 trillion in 2026. Beyond data centers, the expansion of semiconductor fabs—such as TSMC’s six new plants planned in Arizona—is bringing substantial additional load to the grid. Supply and Energy Mix: Shifting from Peak-Response to Baseload Assurance Although solar-plus-storage remains the primary source of capacity addition, as customer load factors rise to 80%-90%, relying solely on solar power can no longer meet round-the-clock baseload needs. Take Pinnacle West as an example: its generation mix is gradually shifting toward natural gas and future nuclear power to address evening residential peak demand and industrial continuous-operation power gaps. Additionally, energy price volatility triggered by Middle East tensions is prompting countries to accelerate the development of diversified energy supply chains, with nuclear power gaining greater attention due to its stable baseload characteristics. Critical Materials and Supply Chain Security Amid intensifying geopolitical friction, localizing production of critical materials has become paramount. Rare earth elements, as the foundation of new energy and high-tech industries, are receiving heightened attention for their supply chain security. MP Materials, as North America’s largest rare earth miner, has already reached a take-or-pay agreement with the U.S. government aimed at replacing some products from China. Meanwhile, semiconductor equipment manufacturers are also accelerating regional capacity deployment to cope with changing export controls and market access restrictions. Stock Insights: · Solar and Trackers: First Solar (FSLR), leveraging CuRe technology and vertical integration advantages, is poised to capture higher premiums amid trade protection policies; Nextpower (NXT), through its acquisition of Prevalon Energy, is expanding into energy storage, and its full-stack service capabilities help boost per-project value. · Nuclear Power and Innovation: Oklo (OKLO) boasts a large order backlog, and its sodium-cooled fast reactor technology offers cost advantages, though fuel supply and approval progress remain short-term constraints. · Semiconductors and Cybersecurity: Applied Materials (AMAT) benefits from sustained high capital spending on advanced processes and storage architectures; Fortinet (FTNT), with its low-power ASIC chips, gains competitive edge in the data center cybersecurity market. · Infrastructure and Logistics: Prologis (PLD), leveraging its land resource advantages, is actively deploying data center businesses, viewing them as high-value uses for industrial real estate.
Analysis framework
The report adopts a hybrid analytical framework combining 'top-down macro trends' with 'bottom-up micro-validation.' First, it identifies three major drivers of 'Reliability' as the core investment theme for 2026 from a macro perspective—surging electricity demand, supply chain restructuring caused by geopolitics, and aging infrastructure. Second, through on-site visits to key nodes across the industry chain—from upstream mines and midstream equipment manufacturing to downstream utilities and end users—it validates how these macro assumptions play out at the corporate level. Finally, it combines financial models to value key targets, providing clear ratings and target prices.
Methodology notes
Mismatch and Transformation in the Electricity Market
By analyzing the rigid growth in electricity demand driven by data centers and manufacturing, contrasting it with the limitations of existing solar-plus-storage systems, the report derives the necessity of natural gas and nuclear power as baseload sources, thereby identifying investment opportunities across different energy segments.
Dual Moat of Technological Barriers and Policy Benefits
When evaluating First Solar and MP Materials, the report not only highlights their technological leadership (such as CuRe technology and vertical integration) but also particularly emphasizes the policy barriers built by government policies (like tariffs, tax credits, and government take-or-pay agreements), which are crucial for judging the sustainability of their excess earnings.
Sustainability of Corporate Capital Expenditure Cycles
By tracking the reinvestment rate and CROCI (Cash Return on Capital Invested) of hyperscale tech companies, the report assesses whether AI-driven capital spending is merely short-term hype or a long-term structural trend, thus determining the long-term valuation center for related supply chain companies.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- First Solar (FSLR)Beneficiary: Benefiting from domestic manufacturing protection policies and efficiency gains from new technologies
- Strengths
- Owns U.S.-based production capacity, technological iteration (CuRe) brings additional benefits, favorable policy environment
- Weaknesses
- Faces risk of module oversupply and exposure to trade policy changes
- Comparison
- Compared to other component manufacturers, its localization advantage in the North American market is more pronounced
- Risks
- Module costs rise beyond expectations, changes in U.S. manufacturing credit policies
- Nextpower (NXT)Beneficiary: Leading solar tracker manufacturer, expanding wallet share through diversification strategy
- Strengths
- World's largest tracker manufacturer, enhanced software and service capabilities increase customer stickiness, acquired energy storage company
- Weaknesses
- Early-stage business margins below average
- Comparison
- Product performance exceeds competitors by about 4%, market share continues to expand
- Risks
- Intensified market competition, fluctuating customer demand, patent protection issues
- Oklo (OKLO)Beneficiary: Pioneer in small modular reactor (SMR) sector
- Strengths
- Large order backlog, technology route offers cost and safety advantages, strong policy support
- Weaknesses
- High capital intensity, fuel supply bottlenecks, lengthy approval process
- Comparison
- Largest order book in the SMR space, but commercialization lags behind traditional energy sources
- Risks
- Inability to secure sufficient fuel supply, delayed licensing approvals, excessive financing needs
- Applied Materials (AMAT)Beneficiary: Semiconductor equipment leader, directly benefiting from fab expansions
- Strengths
- Leader in deposition and etching fields, stable growth in service business, internal AI applications improve efficiency
- Weaknesses
- Faces potential restrictions from export controls, competition from rising Chinese suppliers
- Comparison
- High proportion of system integration revenue, relatively resilient to economic cycles
- Risks
- Escalating geopolitical export restrictions, loss of market share in China
- MP Materials (MP)Beneficiary: Core hub of North American rare earth supply chain
- Strengths
- Owns the largest rare earth mine in the West, deeply tied to the U.S. government (take-or-pay agreements + price floor), strong vertical integration capability
- Weaknesses
- Uncertainty over ramp-up speed of magnet production capacity
- Comparison
- Almost irreplaceable in Western supply chains, enjoys policy moats compared to Chinese companies
- Risks
- Easing of U.S.-China trade frictions leads to fading policy benefits, commodity price fluctuations
- Prologis (PLD)Beneficiary: Industrial real estate giant, unlocking value of data center land
- Strengths
- Significant scale effect, strong balance sheet, prime geographic location suitable for data center development
- Weaknesses
- Rents recover slowly in the current industrial cycle, data center business still represents a small share
- Comparison
- Early mover in top-tier data center markets, but faces electricity access constraints
- Risks
- Macroeconomic uncertainty slows tenant decisions, data center development falls short of expectations
Key data
- U.S. Electricity Demand CAGR3.2%Five-year compound annual growth rate through 2030—the highest since the 1990s
- Global Data Center Electricity Demand Growth220%Expected increase by 2030 compared to 2023
- Hyperscale Tech Companies' Capex+R&D$1 trillion+Estimated total for 2026
- Annual Average Growth in Green Capital Spending$80 billionBased on Goldman Sachs estimates, despite potential phase-out of IRA incentives, investment will still grow
- MP Materials’ Rare Earth Market Share>90%Proportion of U.S. neodymium-praseodymium oxide supply
Impact & implications
The core market impact of this theme lies in redefining the priorities of infrastructure investment. Traditionally seen as defensive assets, utility stocks now carry stronger growth attributes thanks to the growth logic of AI and industrial electrification. Meanwhile, given that rapidly growing electricity demand could lead to annual consumer electricity bill increases of 3%-6%, investors need to pay attention to community resistance and regulatory changes affecting corporate profitability. For relevant companies, those able to secure long-term power purchase agreements (PPAs) early or provide efficient energy-saving solutions will gain higher valuation premiums.
Risks
- Growth in AI computing demand falls short of expectations, or technological advances significantly reduce energy consumption per unit of computing power
- Hyperscale tech companies’ profitability declines, leading to reduced capital spending
- Supply disruptions or sharp price swings in critical raw materials (such as rare earths and uranium)
- Further escalation of geopolitical conflicts causing severe disruptions to global supply chains
- Electricity infrastructure construction faces obstacles such as community opposition, environmental regulations, or labor shortages
- Federal incentives like the U.S. IRA fail to continue or significantly phase out
What to watch
- Quarterly capital expenditure guidance and free cash flow changes from hyperscale tech companies
- Monthly/quarterly updates on U.S. and European electricity demand data
- Import/export policies and inventory changes for key mineral resources (rare earths, uranium)
- Regulatory approval progress for nuclear power plants and small modular reactors
- Actual start-up rates and equipment delivery status of semiconductor fabs