The AI-Energy Nexus
The rapid buildout of artificial intelligence infrastructure is reshaping energy markets through a direct physical channel: data center electricity demand. In this paper, we show that clean energy equities are significantly more sensitive to data center infrastructure returns than traditional energy equities, reflecting their exposure to long-duration investment and grid expansion dynamics. While AI technology indices appear to explain energy returns in simple specifications, their explanatory power disappears once data center infrastructure and market factors are considered, indicating that physical infrastructure—not AI algorithms—is the dominant transmission mechanism. These dynamics are further influenced by divergent interest rate sensitivities, with clean energy behaving like a long-duration growth asset and traditional energy exhibiting inflation-linked characteristics. Together, these findings highlight how AI-driven electricity demand is altering the factor structure of energy investing, with important implications for portfolio construction, risk management, and the energy transition.
