Huaxi: AIDC construction is booming, Chai Fa and other power generation equipment are expected to fully benefit.

Huaxi releases research report which states that the primary factor for data center site selection has shifted from traditional proximity to fiber-optic networks and end users to ensuring power supply. The common choice for backup power sources is diesel engines, with China's domestic production rate of diesel engines for data centers at only 17%, leaving a vast room for domestic replacement. The booming construction of AI data centers is expected to benefit power generation equipment, offering investment opportunities in diesel generators, diesel engines, and components of the upstream industry chain related to backup power sources. Key points from Huaxi are as follows: With the widespread application of artificial intelligence and industrial electrification, global data center demand is experiencing exponential growth. The average power of data center racks has increased from 2-3kW per rack to around 15kW, with some cutting-edge data center racks reaching 50-100kW. This significant power growth far exceeds the power supply capacity of most power companies, leading to a considerable gap in power supply. Due to this power supply gap, data center construction strategies are shifting from grid connection to self-built power plants. Currently, the primary factor for data center site selection has shifted from traditional proximity to fiber-optic networks and end users to ensuring power supply. AIDC power generation equipment mainly includes main power sources and backup power sources, with diesel engines being a common choice for backup power sources. Main power sources bear 100% of the basic electrical load, with over 90% of data centers opting for grid power purchase + self-supplied gas turbine configuration, requiring a redundant capacity expansion of 1.2-1.3 times. Backup power sources are activated in the event of main power source failure, with the installation scale generally being 50% of the maximum load, and diesel engines being a common choice. Foreign capital and joint ventures dominate the domestic data center diesel engine market, with low domestic production rates. According to ZAKER, in 2024, the market for diesel engines for Chinese data centers is dominated by four foreign brands - Cummins, MTU, Caterpillar, and Mitsubishi - with a total market share of 90%. The domestic production rate for complete diesel engines is only 17%, leaving vast room for domestic alternatives. Overall, the demand for diesel engines in data centers exceeds supply, with high industry prosperity. Risks include: AIDC construction progress falling short of expectations, deterioration of competitive landscape, industry policy risks, etc.