China Galaxy Securities: The power shortage in North America and the increasing demand for grid updates continue to grow. Focus on China AIDC and other directions for going abroad.

China Galaxy Securities released a research report stating that the prosperity of the Artificial Intelligence Data Center (AIDC) industry remains strong, with explosive growth in electricity demand and electricity equipment demand. The U.S. Department of Energy predicts that AIDC electricity demand will increase from 176TWh in 2023 to 325-580TWh by 2028, with the share of total U.S. electricity demand increasing from 4.4% in 2023 to 6.7%-12% by 2028. The aging of the U.S. electric grid is severe, with 70% of transformers exceeding their 25-year design life. The U.S. electric grid only has a 20% reserve capacity, making it difficult to cope with the explosive growth in electricity demand brought about by AI, further exacerbating the pressure on the grid. Chinese AIDC distribution storage, transformers, internal combustion engines, and diesel generators are expected to benefit from the overseas market. Key points from China Galaxy Securities: The prosperity of the AI industry remains unchanged, with continued high capital expenditure at home and abroad. In early 2026, North American tech giants announced their capital expenditure plans, with Amazon expecting capital expenditures of $200 billion in 2026, an increase of 50% from the previous year; Google's capital expenditures are expected to reach $175-$185 billion in 2026, an increase of 91%-102%; and Meta's capital expenditures are expected to reach $115-$135 billion in 2026, an increase of 59%-87%. Chinese internet giant Alibaba plans to increase its investment in AI infrastructure and cloud computing from 380 billion to 480 billion over the next three years, while ByteDance expects capital expenditures of 160 billion in 2026, focusing on AI infrastructure construction. The prosperity of the AIDC industry remains strong, with explosive growth in electricity demand and electricity equipment demand. External cabinet power evolving towards 800VHVDC high-voltage direct current With the explosive demand for AI computing power, single-chip power has increased to the kilowatt level, and cabinet power density has increased significantly (such as the integration of 72 chips in a single cabinet using the NVL72 architecture). Traditional 54V power supplies are inefficient and space-consuming under high-voltage currents, and cannot meet the needs of high-density computing deployments. 800VHVDC has high efficiency, reliability, small footprint, reduces copper usage by about 45%, and high-voltage direct current HVDC is becoming more common. From an overseas perspective, NVIDIA is expected to accelerate its transition to 800VHVDC starting in 2027, while OCP Alliance companies such as Meta, Google, and Microsoft are accelerating their 400V power supply solutions. It is expected that domestic manufacturers will achieve their first shipments in the second half of 2026. Currently, single-cabinet power density is relatively low (20-100 kW), chip supply and computing scale are limited, and there is no urgent need for 800V. In the short term, hybrid architecture (UPS+800V local applications) will be the main focus. 800V HVDC has various implementation paths, including sidecar architecture, Panama, and SST, which coexist in various scenarios. According to NVIDIA's 800V white paper, transitioning from the current 54V power supply architecture to 800V power supply. In the future, UPS and HVDC power distribution systems will continue to develop in parallel. The penetration rate of 800VHVDC is expected to rapidly increase from 2026-2027, as the 400V ecosystem matures and is suitable for rapid delivery overseas, 800VHVDC is more suitable for high-power loads, has lower costs, and reserves space for future high-power upgrades. Solid-state transformers (SST) integrate transformer, switchgear, power supply, etc., through highly integrated silicon carbide (SiC) and gallium nitride (GaN) semiconductor devices. This is a future trend that is expected to be commercially introduced in 2027 and become a mainstream solution in 2029-2030, with an accelerating penetration rate. Internal cabinet power density increases, BBU, supercapacitors and other components become more important With the launch of NVIDIA's Rubin and Rubin Ultra in 2026, server power supplies are expected to gradually adopt new semiconductor materials such as silicon carbide (SiC) and gallium nitride (GaN) to replace traditional silicon-based devices. The next generation of power in NVIDIA's supply chain is expected to increase from 5.5kW to 8-12kW, while domestic suppliers are expected to gradually penetrate the 5.5kW power supply market. The value of server power supplies is significantly enhanced. The industry is dominated by Chinese-funded companies such as Delta and Liteon in the high-end AI market. Shenzhen Megmeet Electrical, Shenzhen Honor Electronic, Beijing Relpow Technology, Shenzhen Kstar Science & Technology and other mainland manufacturers are accelerating their expansion into overseas markets. In the future, with the launch of NVIDIA's GB300 server, core issues such as voltage fluctuations under high-power AI loads and instantaneous current spikes become more pronounced. HVDC+BBU+supercapacitors are expected to become standard features on AI servers, providing clear incremental benefits. According to QYResearch, the global market for BBU power supplies is estimated to reach $1.397 billion in 2024 and $3.1 billion in 2031, with a CAGR of 12.7% from 2025 to 2031. Supercapacitors provide a safe and stable backup power source for 5G networks and data centers without compromising operational efficiency. According to QYResearch, the global market for supercapacitor technology is estimated to be around $3.71 billion in 2024 and $4.95 billion in 2033, with a CAGR of 3.3% from 2025 to 2033. In 2026, liquid cooling is moving from a "pilot phase" to "large-scale production," heading towards a billion-dollar scale Google announced a 50% increase in its target for shipments of TPU chips in 2026 to 6 million pieces, and the new generation TPUv7 single-chip power consumption could reach 980W, requiring 100% adoption of liquid cooling solutions. NVIDIA's next-generation Rubin series chips will have a power consumption of 2300W. The power consumption of single chips and the power density of cabinets are increasing in a "step-like" manner, and the penetration rate of liquid cooling in AIDC is accelerating. TrendForce predicts that the penetration rate of liquid cooling in AI data centers will increase from 14% in 2024 to 40% in 2026, with the global market for liquid cooling estimated to be around $15 billion (approximately 105 billion) in 2026, with a CAGR of 30% from 2026 to 2028. In terms of technology, liquid cooling is mainly based on cold plate direct-to-chip (DTC) cooling, with microchannel and two-phase technologies as high-end supplements, and immersion cooling for ultra-high-density scenarios. Cold plate liquid cooling requires minimal adjustments to server chip components and offers a smoother transition from air cooling, with a relatively mature industrial chain. It is widely applicable and will continue to improve heat dissipation efficiency, reduce costs, and expand application scenarios. Microchannel structures integrate chip metal covers with liquid cooling plates, with internally etched micrometer-level channels that directly flow cooling liquid over the chip surface, shortening the heat transfer path and increasing contact area, resulting in a 40%-60% improvement in efficiency compared to traditional cold plates. Mainstream microchannel structures include straight channels, serpentine channels, forked channels, stepped channels, and manifold-type channels, divided by heat exchange mode into single-phase flow and two-phase flow, with mainstream working fluids including water-based and fluorinated liquids. Emerging trends include mixed working fluids and liquid metals, with companies like TSMC, NVIDIA, and Microsoft leading the way in technology adoption. Microchannel liquid cooling is currently at a crucial turning point from laboratory research to large-scale industrial application. Immersive liquid cooling is limited by the high cost of fluorinated liquids and issues with coolant performance, leading to slower development. With the widespread use of high-density chips in the future, immersive liquid cooling is expected to see faster growth. The design complexity of the liquid cooling supply chain, including CDUs, cold plates, UQDs, Manifolds, etc., will continue to increase. Currently, the system and services are dominated by Europe and the United States, with manufacturing carried out in mainland China and Taiwan. Leveraging overseas production capacities and projects such as NV/Google, domestic AI infrastructure, liquid cooling is expected to continue to grow in prosperity. North America is facing a power shortage, with a focus on AIDC distribution storage, transformers, internal combustion engines, and diesel generators expanding into overseas markets The gap between overseas power demand and the need for grid updates in North America continues to grow, with various channels including gas turbines, SOFCs, SMRs, and AIDC distribution storage increasing electricity supply. The U.S. Department of Energy predicts that AIDC electricity demand will increase from 176TWh in 2023 to 325-580TWh by 2028, with the share of total U.S. electricity demand increasing from 4.4% in 2023 to 6.7%-12% by 2028. The U.S. electric grid is severely aged, with 70% of transformers exceeding their 25-year design life, and the U.S. electric grid has a reserve capacity of only 20%, making it difficult to cope with the explosive growth in electricity demand brought about by AI, further exacerbating the pressure on the grid. Currently, there is a large overall power shortage in North America, with high growth in AIDC power demand and distribution concentration (such as in Virginia, Texas, California, etc.), further exacerbating the shortage. AIDC electricity is constrained by a "long demand-supply-grid connection" process: 1) Direct sunlight is an effective solution, with North American AIDC backup logic requiring demand to increase from 8.9GWh in 2025 to 190GWh in 2030, a CAGR of 84%, and demand for green electricity direct connections to increase from 78GWh in 2025 to 475GWh in 2030, a CAGR of 44%. 2) North America's power transformer supply gap reaches 30%, with China's transformer production capacity accounting for 60% of the global total. Optimism for Chinese transformers going overseas. 3) GE Vernova, Siemens Energy, and Mitsubishi Heavy Industries have orders for gas turbines scheduled until 2028, but are maintaining limited expansions. Core components of gas turbines, such as hot-end power turbine blades and main shafts, have long production cycles due to high value ratios, and high-end casting and manufacturing. Chinese mainland manufacturers are optimistic about entering the global supply chain, benefiting from domestic production and key component suppliers in areas such as blades, casting, and materials. 4) Overseas demand for diesel engines is growing rapidly, with the global high-power market dominated by Cummins, Caterpillar, MTU, Mitsubishi, and Kol, with limited expansions. Domestic engine manufacturers and parts suppliers are expected to open up growth opportunities through overseas expansion. Risk Warning Risk of capital expenditure falling short of expectations; Risk of AI development falling short of expectations; Geopolitical risk; Risk of increased competition.