Digital Demand Shock: What PJM’s Record Price Means for Tech Investors
*Editor’s note: There will not be any commentary from 8/1 through 8/8.
PJM Interconnection’s 2026/2027 base residual auction set a fresh price record.
By 2030, domestic data center square footage is expected to double.
The numbers highlight the demand potential for data center infrastructure components.
Another sign of the burgeoning artificial intelligence boom…
Last week, a notable event took place in the utility space. PJM Interconnection, the largest power grid operator in the United States, announced the results of its Base Residual Auction for 2026/2027. That’s the process by which it secures the lowest-cost resources needed to ensure there is ample supply to meet future power demands.
The final price for the auction met the Federal Energy Regulatory Commission (“FERC”) cap of $329.17 per Megawatt-day. That set a record and signified a 22% increase from the prior year’s record price of $269.92…
These prices reflect the cost PJM pays generators to ensure capacity is available during peak demand. Based on the more than ten-fold jump in prices for the last two auctions, the power supply needs to expand to keep up with expected demand. The change should incentivize companies to build more infrastructure that supports power generation.
Yet, at the same time, it highlights the demand potential for data centers and artificial intelligence. That’s because the area covered includes the states of Ohio, New York, Pennsylvania, and Virginia. The first is an area where companies, like Meta, and Open AI, are seeking to build new data centers while the other three are home to some of the largest clusters in the country.
Based on the above numbers, and other data I’ve looked at, there’s still a lot of capacity to be built. That should continue to support steady revenue and margin growth for the technology giants that operate these facilities as well as the infrastructure and component providers who support them. As business increases and their shares keep rising, it should support a long-term rally in the S&P 500 Index.
But don’t take my word for it, let’s look at what these next four charts tell us…
PJM Interconnection is akin to a traffic controller for electricity across a huge stretch of the Eastern U.S., covering 13 states and Washington, D.C. The region is important because it accounts for about 20% of national economic output. PJM’s mission is to make sure there’s always enough power to keep the lights on. It accomplishes the task by coordinating the buying and selling of electricity among power plants, utilities, and other energy players.
It also manages the rules and logistics for connecting new power projects to the grid, which is called the “interconnection” process. Whether it's a solar farm or a big data center, if it wants to plug into the grid, it must go through PJM's approval system — and lately, that queue has gotten pretty jammed up.
The following chart is the amount of power capacity (current and estimated) in the U.S. starting in 2020 and running through 2030…
The numbers are based on data from the Department of Energy (“DOE”), the Energy Information Administration (“EIA”), and S&P Global. The dark blue bars are hard data while the light blue ones are estimates. Last year, total power output potential stood at around 1,300 gigawatts. However, by 2030, that number is expected to rise by almost 25% to 1,600 gigawatts.
A major driver of that increase is data center expansion…
At the end of 2024, there was roughly 150 million square feet worth of domestic data center capacity, according to data from consulting firm McKinsey, commercial services and real estate company CBRE, and the DOE. But by 2030, that square footage is expected to double to more than 310 million feet.
And that’s going to cause the amount of power consumed by data centers to rocket higher…
Domestic data centers consumed roughly 245 terawatt-hours of energy last year, based on the latest findings from the 2024 U.S. Data Center Energy Usage Report by Lawrence Berkeley National Laboratory and projections from McKinsey, Goldman Sachs, and the EIA. To put that into perspective, the typical home in the U.S. consumes about 10,800 kilowatt-hours annually. In other words, the average household uses a very small fraction of one terawatt-hour per year.
The difference being, data centers use vast amounts of power, all day long…
This last chart shows us the percentage of domestic power capacity consumed by data centers since 2020, and a forecast through 2030. The forward-looking estimates are based on the expectation for the increase in power capacity we discussed earlier. Last year, data centers accounted for around 6% of all power consumption but by 2030, that number is expected to swell to 15%, even though supply is expected to rise by almost 25%.
Looking forward, PJM projects peak demand growth won’t hit until 2039. Unsurprisingly, it expects the shift will be driven largely by AI and hyperscale data centers. It anticipates power demand will have increased roughly seven times the levels experienced in 2023. And it anticipates those facilities will account for 24% of total load. As a result, PJM has already approved $5.8 billion in transmission upgrades to support west-east load transfers and interconnect new generation.
So, as I said at the start, the AI buildout is still in the early stages. The combination of record auction prices, data center-driven demand, and infrastructure investment should support margin expansion for tech giants like Meta, Microsoft, and Alphabet, who are building AI campuses…. Component suppliers in power electronics, cooling, and semiconductors…. And utilities and grid operators with exposure to PJM.
These dynamics should continue to support earnings momentum for the technology companies associated. And as EPS rises, it should drive down the forward price-to-earnings multiple for technology heavy indexes like the S&P 500, underpinning a steady, long-term rally.
If you’re interested in investing in this trend, consider the VanEck Uranium and Nuclear fund (NLR) as well as the iShares U.S. Digital Infrastructure and Real Estate fund (IDGT). NLR tracks the MVIS Global Uranium & Nuclear Energy Index, investing in companies involved in uranium mining, nuclear power generation, and related services—benefiting from policy tailwinds and rising demand for low-carbon energy. IDGT targets U.S.-listed firms operating data centers, telecom towers, and digital infrastructure, reflecting the backbone of AI and cloud expansion.
Five Stories Moving the Market:
The U.S. and European Union agreed on a hard-fought deal that will see the bloc face 15% tariffs on most of its exports, including automobiles, staving off a trade war that could have delivered a hammer blow to the global economy – Bloomberg. (Why you should care – the 15% tariff rate is better than the April 2 and auto levy proposals)
Beijing and Washington are expected to extend their tariff truce by another three months at trade talks in Sweden this week; during the expected 90-day extension, the U.S. and China will agree not to introduce new tariffs or take other actions that could further escalate the trade war – South China Morning Post. (Why you should care – a pause points to progress being made on a trade deal)
Chinese government officials have repeatedly warned against “disorderly” competition that has eaten into businesses’ profit margins; similar messaging from ministries and regulators has stoked speculation that supply-side reform could be in the works that would address stagnant, near-zero price growth – WSJ. (Why you should care – fixing manufacturing overcapacity issues could weigh on raw material demand, easing global inflation growth)
Senior U.S. and Chinese negotiators will meet in Sweden to tackle longstanding economic disputes; analysts say the U.S.-China negotiations are complex and will require more time – Reuters. (Why you should care – an agreement between the two sides would boost the outlook for global economic growth)
Federal Reserve officials are determined to hold interest rates steady a little while longer, though an increasingly contentious debate at this week’s policy meeting may bolster expectations for rate cuts in the fall – Bloomberg. (Why you should care – a rate cut at the monetary policy meeting later this week would come as a surprise)
Economic Calendar:
Earnings: HIG, NUE, PFG, UHS, WM
China – Industrial Profits Year-to-Date Through June
U.S. - Dallas Fed Manufacturing Index (10:30 a.m.)
Treasury Auctions $69 Billion in 2-Year Notes (11:30 a.m.)
Treasury Auctions $73 Billion in 26-Week Bills (11:30 a.m.)
Treasury Auctions $70 Billion in 5-Year Notes (1 p.m.)
Treasury Auctions $82 Billion in 13-Week Bills (1 p.m.)