President Donald Trump’s steel and aluminum tariffs could slow data center growth by exacerbating the shortage of key components in the electric grid, according to a leading commodity analyst at Carlyle.
Big Tech missed Wall Street expectations for their cloud segments last week due in part to a shortage of transformers, said Jeff Currie, chief strategy officer of energy pathways at Carlyle.
Transformers are crucial pieces of equipment that ramp the voltage of electricity up and down, enabling its distribution from power plants to end customers such as data centers.
“What are transformers? They’re just big chunks of metal,” Currie told CNBC’s “Squawk Box” on Thursday. “So if you put tariffs disrupting supply chains it just aggravates that situation.”
Alphabet, Amazon and Microsoft missed revenue targets for their cloud segments in their most recent quarterly financial results, sending their stocks lower. Microsoft’s Azure cloud business has been struggling with supply shortages. Demand for Alphabet’s AI products is exceeding available capacity.
“We are in a tight supply-demand situation, working very hard to bring more capacity online,” Anat Ashkenazi, Alphabet’s chief financial officer, told investors on the company’s Feb. 4 earnings call.
The world’s largest transformer manufacturer, Hitachi Energy, warned late last year that the industry is overwhelmed with demand for the equipment.
“Ramping up capacity is definitely an issue. It’s not easy and it will probably not ramp up fast enough,” CEO Andreas Schierenbeck told The Financial Times in a Nov. 3 interview. Schierenbeck told the FT that utilities that need transformers would have to wait up to four years if they don’t already have one reserved.
Transformer capacity might need to more than double or triple through 2050 compared with 2021 levels to keep up with demand as infrastructure ages and the economy is electrified, according to a study published in March 2024 by the National Renewable Energy Laboratory.
Trump’s aluminum tariffs could also disrupt the grid by bringing manufacturing of the energy-intensive metal back to the U.S., Currie said.
“If you think AI is power intensive, aluminum is a whole different world,” Currie said. “It is six times more power intensive than AI data centers. So bringing it onshore in an environment in which AI data centers are already expected to consume any excess power, this would be incredibly disruptive to power grids.”
“There is a reason it was outsourced to begin with,” said the analyst, who headed up commodities research at Goldman Sachs for decades. He is known for bold, and often bullish, calls on oil prices, including his predictions of a China-driven surge in the 2000s.
