Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.
Earlier this year, Nvidia CEO Jensen Huang likened artificial intelligence (AI) to “a five-layer cake”. At the top are applications, such as chatbots. The layer below is the software, which includes language models. Further down are infrastructure and memory chips.
The bottom layer is the most important. “At the foundation is energy,” Huang said, noting that “energy is the first principle of AI infrastructure and the binding constraint on how much intelligence the system can produce”.
Driving the AI boom is the US-China battle for technological supremacy. At the heart of the race is the buildout of data centres. According to Bank of America, AI-related capital expenditure globally is expected to triple over the next five years to US$1.2 trillion. While the US accounts for the bulk of the investment, China’s share is forecast to reach 27 per cent by 2030.
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Before the “DeepSeek moment” in January last year, China’s AI ambitions were perceived to be constrained by US export restrictions that made it hard for companies to buy or build the advanced memory chips AI models rely on. In a July report, Morgan Stanley said the availability of advanced chips had been “the biggest risk” to the Chinese data centre/AI growth engine.
Yet since the energy crisis triggered by the war in Iran erupted, the narrative around China’s data centre market has shifted towards the strengths of the sector. The bottom layer of Huang’s cake – the electricity vital to building digital infrastructure – has become even more critical to the outlook for data centres globally.
How China’s energy structure cushions the blows of global oil crisis
China’s relative resilience to the energy shock, accentuated by the acute vulnerabilities of other Asian economies, has drawn attention to the country’s abundant and cheap electricity. As Nomura noted in an April 2 report, the power sector “is almost self-sufficient on primary sources: it uses almost no natural gas and oil and relies heavily on coal, which is mainly mined in China”. The report points to the “rapid progress” in incorporating renewable energy sources and to the sector being heavily regulated.
