How to Make AI Less of a Power Guzzler
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How to Make AI Less of a Power Guzzler

The future of artificial intelligence may depend, in part, on whether providers can reduce their appetite for electricity and water

By BART ZIEGLER
Sun, Nov 24, 2024 7:00amGrey Clock 5 min

Artificial intelligence is poised to transform both work and everyday life. But it has a dark underside: AI computer centres consume enormous amounts of electricity and water, to power their processing chips and cool the heat they emit.

Annual U.S. electricity use by data centres of all types will rise from 3% to 4% of the nation’s total today to between 11% and 12% in 2030, with AI being the main driver, according to projections from consulting firm McKinsey.

Meantime, AI’s demand for water globally in 2027 could account for more than the total annual amount withdrawn for use in Denmark or half of that in the U.K., according to researchers at the University of California, Riverside and University of Texas at Arlington.

All of that heavy use is causing logistical and public-image problems for the industry. Some utilities struggle to supply the needs of AI providers, and communities push back, fearing the added use will boost power prices and deplete water supplies.

The biggest AI providers, including Amazon , Alphabet Inc.’s Google, Meta and Microsoft , say they are working to be both carbon-neutral and replenish more water than they use—even as they continue to build massive data centres.

“It will be harder to build data centres, especially where energy already is at a premium or water might be scarce,” says Ed Anderson, research vice president at technology advisory firm Gartner. But, he adds, “the economic opportunity is rich enough that the providers will find a way.”

Below are some of the steps tech companies and researchers are hoping will reduce AI’s appetite for power and water.

Making chips more efficient

One way of addressing power consumption is to make chips less power hungry. Nvidia , the largest maker of AI processors, says its newest ones, called Blackwell, will be about 25 times as energy efficient as its previous high-end version. Meanwhile, Amazon, Google, Meta and Microsoft are designing their own processing chips, in part to cut costs but also to make them use less power.

“Each generation has been significantly more efficient than the prior one,” says Google’s Partha Ranganathan , a vice president and engineering fellow, speaking of his company’s processing units.

Different sources for water

Equipment used to cool data centres creates another issue: where to get the vast amount of water these systems consume. Google says its data centers globally used about 6.1 billion gallons of water in 2023, equivalent to the water used to irrigate and maintain 40 golf courses in the Southwest each year.

OpenAI’s GPT-3 model, meantime, consumes the equivalent of a 16.9-ounce bottle of water for every 10 to 50 responses it provides to users’ queries, according to the researchers at UC Riverside and UT Arlington. OpenAI declined to comment on the finding.

Data-centre water typically comes from municipal water systems. But in an era of water shortages, diverting drinking water for an industrial use has created tensions in some locales. That has sent AI companies searching for other sources, including rainwater, treated wastewater or water left over from factory processes.

Amazon, for example, uses recycled wastewater for cooling at its Santa Clara, Calif., data centers. The water comes from the city’s sewage-treatment system after it undergoes a three-step process that removes 99% of impurities.

Smarter training for AI

Some researchers have experimented with carefully controlling what kind and how much information an AI model takes in during training. Usually, training a so-called large language model AI, such as OpenAI’s ChatGPT and Microsoft’s Copilot, involves ingesting hundreds of billions of words from the internet and elsewhere, then learning the relationships among them.

And that is energy and water intensive. Training an AI model called BLOOM over a 3½-month period consumed enough electricity to power the average U.S. home for 41 years, according to a Stanford University report.

As for water, training one of Google’s AI models, known as LaMDA, used about two million liters of it, both to produce the electricity used and keep the computers cool—enough to fill about 5,000 bathtubs, according to Shaolei Ren , a professor of electrical and computer engineering at the University of California, Riverside. Google declined to comment on the research, but said it is “committed to climate-conscious cooling of our data centres.”

One possible solution is to have AIs remove redundancy and low-quality data, instead of just vacuuming up the whole internet. The goal is a much smaller set of data that the AI system can more easily sift through when a user asks it a question.

This can lower electricity consumption, according to some researchers.

AI systems that limit the information they take in are also less likely to “hallucinate”—give false or misleading answers—and can respond in ways that are more on-point because of the higher quality of the data they contain, experts say. Microsoft found that one of its pared-down AIs exceeded that of vastly larger ones in measurements of  common sense and logical reasoning .

Dialling down the juice

Researchers at several universities have found that capping the amount of electricity used by AI computers has only a minor effect on the outcome, such as slightly more processing time.

Experts at the Massachusetts Institute of Technology and Northeastern University say that reducing the power to one of Meta’s AIs by 22% to 24% slowed the speed at which the AI responded to a query by only 5% to 8%. “These techniques can lead to significant reduction in energy consumption,” the researchers say. They add that the method also caused the processors to run at a lower temperature—which could trim the need for cooling.

Meta declined to comment on the research, but said it has had efforts to boost data-centre energy efficiency “since we started designing our first data center over a decade ago.”

Meantime, a team at the University of Michigan, University of Washington and University of California, San Diego devised an algorithm to modulate the use of power during training. The technique could cut power use by up to 30% , they say.

Show users AI’s impact

Some researchers believe companies should give users more context about the environmental impact of AI, to let them make more-informed decisions about the technology. Ren, of UC Riverside, proposes that AI providers disclose the approximate amount of electricity and water each query consumes—akin to how Google tells people searching for flights the amount of carbon emissions each trip would create.

Another proposal is to devise a rating system for the power efficiency of AI systems, akin to the government’s Energy Star ratings for home appliances and other products. Such a system could help people choose AI models for differing tasks based on their energy consumption, according to Sasha Luccioni , an AI researcher at Hugging Face, a company that makes machine-learning tools.

Using greener power

Academics and others have come up with other proposals to minimise AI’s environmental impact by tapping into green energy. For instance, companies might build more data centers in countries with abundant, low-emission power, such as hydropower in Norway or geothermal in Iceland. Or companies might do AI calculations at different locations at different times of the day, such as deploying computer centers with high use of solar power during the daytime or wind-powered ones when wind is more reliable at night.

Chilling the computers

Data-centre computers put out tremendous amounts of heat, and their temperature must be kept in a certain range, often 64 to 72 degrees, to prevent damaging the electronics. Traditionally, this has been done by high-power air conditioning. But air conditioning uses up to 40% of all the electricity consumed by a typical data centre, while devices called cooling towers that expel the heat to the outside air use a lot of water.

In response, the data-centre industry is moving to liquid cooling, which circulates a special liquid or cold water to “cold plates” that sit on top of the processor chips and keep them at a safe and efficient temperature range. The system, called direct-to-chip liquid cooling, uses less power than the traditional method—about 30% less, Nvidia says—because liquid is vastly better at removing heat from the electronics than blowing cold air over them.

Another method under development, called immersion cooling, involves placing the computers themselves inside big tanks of cooling liquid. While showing early promise, there are environmental concerns about the chemicals often used in the setup, says Mark Russinovich , chief technology officer of Microsoft’s Azure cloud-computing unit.

Some companies, meanwhile, are using computing gear that can withstand higher temperatures and doesn’t need as much cooling. Google says its data centres already are 1.8 times as energy efficient as the typical data centre, which it achieved in part by raising the inside temperature to 80 degrees. For every one-degree boost in their temperature, data centres can save 4% to 5% in energy costs, according to the Energy Star program.



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The AI Boom Faces Its First Serious Debt Test

Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.

By Ruba Jaajaa
Mon, Oct 19, 2026 4 min

A sharp technology sell-off has exposed a new anxiety on global markets: whether the enormous borrowing behind the artificial-intelligence infrastructure boom can generate sufficient returns as interest rates rise and Chinese competition intensifies.

The artificial-intelligence investment boom has powered technology shares, semiconductor manufacturers and data-centre operators to extraordinary heights. Last week, investors were given a reminder that much of this expansion is being built with borrowed money.

The technology-heavy Nasdaq Composite fell 4.5 per cent over the week ended October 16, its weakest performance since late June. Semiconductor shares suffered an even deeper correction, with the Philadelphia Semiconductor Index losing about 11.4 per cent.

The selling spread quickly through global markets. Micron Technology fell 14.6 per cent over the week, while South Korea’s Samsung Electronics and SK Hynix dropped approximately 18 per cent and 24 per cent respectively.

This was more than a routine bout of profit-taking. Investors were reassessing three interconnected risks: higher interest rates, the rapidly expanding debt burden attached to AI infrastructure and the prospect of stronger competition from Chinese memory-chip manufacturers.

The debt behind the AI build-out

Artificial intelligence requires a physical infrastructure network of enormous scale. Data centres must be built, advanced processors purchased, power supplies secured and cooling systems installed before customers begin generating meaningful revenue from them.

Technology companies are increasingly supplementing their own cash with corporate bonds, syndicated loans, equipment leases, private credit and project-level financing.

JPMorgan describes the emerging funding model as a combination of conventional corporate borrowing and project finance tied to individual data-centre assets. In Australia, the Reserve Bank estimates that syndicated loans accounted for approximately three-quarters of data-centre financing during 2025 and 2026 to date.

The numbers are becoming large enough to affect broader credit markets. The Federal Reserve Bank of Dallas has cited Wall Street estimates suggesting AI-related investment-grade bond issuance could approach US$300 billion in 2026 alone.

That borrowing is not automatically problematic. Debt can be an efficient way to finance long-lived infrastructure when future revenue is sufficiently predictable. The concern is that AI technology, customer demand and computing economics are changing much faster than the repayment schedules attached to the assets.

A data centre financed today may carry debt for years. Investors must therefore make assumptions about future utilisation rates, electricity prices, chip performance, customer concentration and the amount businesses will ultimately pay for AI computing.

When interest rates rise, those assumptions become less forgiving.

Inflation changes the calculation

September’s US inflation data intensified the pressure. Consumer prices increased 3.7 per cent over the year, ahead of market expectations and up from 3.4 per cent in August.

The hotter reading reduced confidence that interest rates would fall quickly and pushed bond yields higher. That matters particularly for companies whose valuations depend on profits expected well into the future, as well as highly leveraged infrastructure operators that may need to refinance.

CoreWeave has emerged as a closely watched test case. The specialist cloud-computing company has accumulated substantial debt and lease obligations to build AI capacity, while relying on a concentrated group of large technology customers.

Its shares fell sharply during the sell-off, while the cost of insuring its debt against default climbed. CoreWeave has argued that its contracted backlog more than covers its obligations and that financial markets do not always understand its business model. Nevertheless, its securities have become a proxy for investor confidence in debt-funded AI infrastructure.

Oracle, another major investor in AI computing capacity, fell 8.8 per cent in Friday trading, while CoreWeave dropped 15.5 per cent.

The question is shifting from how much AI infrastructure can be built to how profitably it can be operated.

China adds another source of pressure

Interest rates were not the only catalyst. Reports of advances by Chinese memory-chip producer ChangXin Memory Technologies raised concerns that lower-cost Chinese products could increase competition across the global semiconductor industry.

Memory chips are essential to AI systems, but the industry is historically cyclical. Periods of tight supply and high pricing can encourage rapid investment, eventually producing oversupply and falling margins.

The prospect of a well-funded Chinese competitor expanding its technological capabilities unsettled investors in Samsung, SK Hynix and Micron. It also demonstrated that AI-related demand does not insulate chipmakers from conventional competitive pressures.

That combination—slower rate cuts, more expensive financing and potentially cheaper supply—challenged the assumption that every company exposed to AI would enjoy continually expanding margins.

A reset rather than the end of the boom

The sell-off does not establish that the AI boom is ending. Demand for computing power remains strong, the largest technology companies continue to generate formidable cash flows and many infrastructure projects are backed by long-term customer contracts.

What has changed is the market’s willingness to overlook the price and financing structure of that growth.

The most resilient companies are likely to be those able to fund investment from operating cash flow, secure long-duration customers and demonstrate that new capacity will earn returns comfortably above its financing costs.

More speculative operators may face greater scrutiny, particularly where debt is expensive, customers are concentrated or expected revenue depends on demand that has not yet materialised.

For Australian investors, the lesson extends beyond US technology shares. Local data-centre operators, infrastructure funds, electricity suppliers and property groups are increasingly exposed to the same investment cycle.

Artificial intelligence may remain one of the defining growth themes of the decade. But last week’s correction showed that enthusiasm for the technology does not eliminate financial discipline.

The next stage of the AI boom will be judged not only by computing power, model performance or demand for chips, but by something more traditional: whether the assets being financed can generate enough cash to repay the money borrowed to build them.

Fact box

Nasdaq Composite: Down 4.5 per cent for the week ended October 16, 2026

Philadelphia Semiconductor Index: Down approximately 11.4 per cent

Micron Technology: Down approximately 14.6 per cent

Samsung Electronics: Down approximately 18 per cent

SK Hynix: Down approximately 24 per cent

US September inflation: 3.7 per cent annually

Estimated 2026 AI-related investment-grade issuance: Approximately US$300 billion

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