With power demand from artificial intelligence on track to grow as much as 30x from 2024 to 2035, and the Trump administration seeking to fast track data center buildout, there’s a wealth of opportunity — and literal cash — for startups that can help hyperscalers meet their clean energy targets while cramming as many high-powered computing chips into a data center as physically possible.
“I think the proportion of pitches that we see that reflects some kind of data center messaging has gone from maybe one out of 20 to one out of five,” Matthew Nordan, co-founder and general partner at Azolla Ventures told me. “It’s a lot.”
Perhaps the most obvious data center pitch is for companies offering clean, firm power or energy storage. In Azolla Ventures’ portfolio, that includes the geothermal exploration and development company Zanskar and the underground pumped hydro storage company Quidnet. While neither has announced any data center tie ups to date, both are having conversations with all the usual suspects — a group that includes Google, Microsoft, Amazon, and Meta. “Virtually any reasonably mature, ready to deploy clean, firm power technology company is talking to the same people,” Nordan told me.
Some big deals have already made headlines, especially in the nuclear and geothermal sectors. There’s Microsoft’s plan to reopen the Three Mile Island nuclear plant and Google’s deal with the small modular reactor startup Kairos, plus Fervo’s partnership with Google and Sage Geosystems’ partnership with Meta on the geothermal side. But fusion companies also see data centers as a viable option. Google already has an offtake agreement with Commonwealth Fusion Systems, while Microsoft has a deal with Helion Energy.
But it’s not just the big name cleantech companies that are turning into data center service providers. The AI boom also presents a major opportunity for deep tech startups working on electrical infrastructure. While companies in this sector might not scream “climate tech,” behind the curtain they’re driving significant gains in energy efficiency that data center operators are eager to tap into.
In Azolla’s portfolio, these include Scalvy, founded to build modular powertrain electronics for electric vehicles. The company’s small, distributed units connect directly to EV battery cells, converting DC power from the batteries into AC power for the motor. “The hyperscalers started coming to the company saying, can you do what you’ve done in reverse?” Nordan told me. “Can you take the AC coming in off the grid and then convert that to DC, and then interface with the load and energy storage systems?”
That proved easy, and now Scalvy’s small, building-block style approach allows data centers to control power flow on the server rack itself, as opposed to taking up valuable space with a separate power rack. While the details haven’t yet been announced, Nordan said the startup “has recently done their first agreement for data center power, and it’s with one of the large names that you would expect.”
Piva Capital has also invested in a number of under-the-radar companies in this arena — Veir, for instance, initially proposed to build “high-temperature superconducting transmission lines” that could carry electricity with near-zero resistance, and thus very low energy loss. But after seeing some early interest from data centers, the startup learned that hyperscalers were not only struggling to build transmission lines to their substations, but were also experiencing severe bottlenecks in their low-voltage distribution networks, responsible for getting power into and around data centers.
“We realized we can apply essentially the same superconducting technology that we’re targeting for transmission and distribution applications and build a low-voltage set of products for data centers, specifically, that can allow you to shrink the size and weight of conductors and bus bars [which distribute power within data centers] by 10 times,” Veir’s CEO Tim Heidel told me. With this newly refined focus, the company raised an oversubscribed $75 million Series B round in January, which included participation from Microsoft’s Climate Innovation Fund.
Piva is also an investor in Menlo Micro, a spinout from General Electric that uses a proprietary metal alloy to make high-performance electrical switches that are smaller, faster, and more energy efficient than the industry standard. The startup has already commercialized its tech for use in high-speed radio frequency devices, as well as for testing the performance of semiconductors.
Ultimately, the company is aiming to integrate its switches into a wide range of high-performance electrical equipment, data center power systems very much included. In this context, the startup’s switches could be embedded directly into semiconductor packages or circuit boards rather than installed on racks, leading to more compact and energy efficient data center power management. The switches’ small size and low resistance would also generate less heat than what’s used today, further increasing overall energy efficiency.
Menlo Micro’s CEO Russ Garcia told me that five years down the line, he expects a third of the company’s revenue to come from power applications such as data centers, growing to two-thirds in 10 years’ time.
Even sustainable materials companies are getting pulled in, Nordan told me. The primary example there is Sublime Systems, which inked a purchase agreement with Microsoft for up to 622,500 metric tons of low-carbon cement. The deal gives Microsoft the right to use the cement if and when it's useful, but more importantly, it entitles the tech giant to the cement's environmental attributes — that is, the carbon savings associated with producing it. The idea is that the tech giant can catalyze market demand without the emissions impact of shipping the cement to its data center sites.
Amazon has also invested in a number of companies in this sector, including Brimstone and CarbonCure, which are working to decarbonize cement and concrete, as well as Electra, which is working on green steel. The hyperscaler is also trialing products from Paebbl, which produces a carbon-negative mineral powder that can partially replace cement, on the construction of an Amazon Web Services data center in Europe.
While the current administration may not be exerting pressure on hyperscalers to reduce their emissions, Nordan told me that the tech giants are thinking about the long term. “If the tide turns and there will be real or effective costs to emissions in these data centers, they want to do everything they can to bankroll emissions reductions now. And that manifests itself in low-carbon cement, in green steel, in all sorts of technologies.”
At least some of the aforementioned investments — especially those that increase efficiency while decreasing the size of data center components — won’t necessarily lead to emissions reductions, however. Much as when the Chinese AI firm DeepSeek released its cheaper and more efficient AI model, the idea of Jevon’s Paradox looms large here. This is the theory that making products more efficient and cost-effective will lead to an overall increase in consumption that more than offsets the efficiency gains.
Heidel, for one, told me that Veir’s potential customers don’t see energy efficiency in itself as the startup’s main draw. “It’s actually the space savings, the real estate savings, the ability to lay out data centers and configure them in new ways,” he told me. Mainly what Heidel is focusing on with his customers-to-be is, “how much smaller can you make the building, or how many additional AI pods or servers could you fit into the same footprint, or how much higher of a server density could you achieve using our solution?”
Of course, one day Veir may fulfill its original dream of creating superior transmission infrastructure, just as Scalvy could circle back to its initial focus on EV drivetrains and Menlo Micro could wriggle its way into a whole host of electronic devices.
As Heidel told me, he sees this data center buildout as just the first push in what will be an ongoing effort to meet the world’s growing electricity demand. “If we can figure out how to serve all of this demand at the speed at which data centers are growing, and do so cost effectively, and do so in a low-carbon way, then we can take those learnings and apply them to all of the other industries that are coming in the future that'll also be facing enormous electricity demand,” he explained.
But for the time being, as Larson of Piva Capital told me, investors are simply trying to get their portfolio companies “to skate where the puck is going.” And that’s more than okay for Heidel. As he put it, there’s “so much enthusiasm for data centers today that we are having trouble just keeping up with all the interest in that market.”
ERCOT’s fuel mix from Monday, April 8, including during the solar eclipse.ERCOT
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