The ASX green tech sector has started to build formation and all roads lead to one station: energy demand.
Factors like artificial intelligence (AI), the electrification of things, and renewable energy are all wheels in motion on an economic tricycle, driving linearly towards a net-zero future.
These drivers are all set to increase the demand for clean energy sources significantly over the coming ten years.
And companies like Origin Energy Ltd (ASX: ORG), AGL Energy Ltd (ASX: AGL), and NextDC Ltd (ASX: NXT) are taking centre stage here in Australia.
According to top brokers, these ASX tech shares have exposure to the trend toward net-zero and could be well-positioned to capture the upside. Let's see.
ASX green tech set to shine
The United Nations, through the Intergovernmental Panel on Climate Change (IPCC), has set a global goal of reaching net-zero emissions. The goal is to be carbon neutral by 2070.
Recent analysis from Goldman Sachs suggests that to get there will require an investment of over $US75 trillion.
That's an average of US$1.6 trillion each year from 2024 until then.
The forecasts include $7 trillion for power networks, another $5.1 trillion on energy storage, and US$3.7 trillion for the infrastructure that will make the transition to electric vehicles (EVs) possible.
There's also US$9.3 trillion needed to make industrial processes carbon neutral, and US$1.3 trillion for green hydrogen plants.
For Australia, this means a significant increase in renewable energy, spanning solar, wind, and green hydrogen.
Here is where companies like Origin and AGL step in. Both energy giants are already innovating to build cleaner grids.
For starters, Goldman says that peak oil demand will occur in 2030. But, natural gas demand will stay high "as a transition fuel growing until 2050".
Power demand is going to rise as various sectors — such as road transport, heating of buildings, and industrial manufacturing — rely on electrification to reduce their carbon footprint.
Goldman estimates that by 2070, global power generation will increase by three times the current levels to hit net-zero targets.
It says that power generation is "the most vital component" in the energy recipe. Here in Australia, this bodes well for Origin and AGL, two of the nation's largest energy suppliers.
Origin has over a quarter of Australia's residential electricity market and 30% of East Coast LNG supply with its APLNG venture. Meanwhile, AGL has about 22% of the nation's supply.
Between Origin and AGL, you're looking at nearly half of the nation's electricity supply.
Citi rates the former a buy, with a price target of $11 apiece. Meanwhile, per CommSec, the UBS consensus also rates AGL a buy.
On the infrastructure end
Data consumption is soaring, and NextDC is stepping up to meet the demand sustainably. The ASX tech stock has rallied 22% this year as investors buy into the AI infrastructure theme.
NextDC's position as a provider of digital infrastructure to those seeking cloud computing, server capacity, and data flow solutions also has brokers salivating.
According to CommSec, the ASX tech stock is rated a strong buy from consensus. All but one of 16 analysts recommend buying shares.
And we can see why based on some of the projections.
Data centre capacity in the US alone could double by 2030, according to McKinsey. This could see it grow to 35 gigawatts by then – equal to the entire capacity of some countries.
According to Eiger Capital, NextDC is "already benefitting" from the growth in demand.
However, the ever-increasing digitisation of society is expected to see a supercharging of data requirements driven by AI advances. Consider the use of ChatGPT. This technology consumes up to ten times the electricity that a standard Google search does.
The need to process vast quantities of data from multiple sources has resulted in evermore powerful processing units.
Foolish takeaway
The ASX green tech theme is gaining speed. Shares such as Origin and AGL are well-positioned on the energy supply front. Combined, they supply a huge chunk of Australian energy.
But there's also the infrastructure side. This is where the likes of NextDC are stepping in. It too has benefited from investment into the sub-industry.
In any sense, the theme is just getting started. Most experts see huge growth in energy demand and AI in the future.
