On today’s show we are looking at the impact of data centres on the local economy where these are located. We are looking at the energy component, and the technology life cycle. 

You have no doubt heard the statement that “energy is the economy.” It is true that for every unit of GDP there is an equivalent unit of energy consumed somewhere in the world. 

But in this instance, energy is the lifeblood of the AI industry. In addition to the gold rush in AI, there is a recognition that the world is not generating enough electricity to satisfy the incremental demand from data centres. 

What caught my attention this past week was not the plethora of announcements of new power generating capacity. Although that is impressive, there is something even more important that we will explore. 

Let’s take a look at the aggregate power generation announcements in just the past month alone. Several of the announcement have been in the range of 2GW. We need to put this in perspective. 2GW of power generation is enough to power 1.5M homes. This is enough to power a city like Phoenix or San Diego or San Antonio. So when we measure the power consumption of a large data centre complex, we are comparing it to the GDP of an entire city of 1.5M homes, or about 3m people. 

The primary driver of obsolescence is the relentless pace of Nvidia's (and other manufacturers') innovation cycle. New generations of AI chips are released frequently, every 12 to 18 months, bringing significant leaps in computational power, efficiency, and new features.

Meta's studies, for example, have shown significant GPU failures during the training of large models like Llama 3, with an estimated annualized failure rate of around 9%, potentially reaching 27% over three years for H100 GPUs. These chips consume a lot of power (700W for H100s, over 1000W for future chips) and generate intense heat, putting immense stress on the hardware.

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