In this article, we will take a detailed look at the 9 Best AI Energy Infrastructure Stocks to Buy Now.
Rob Thummel, senior portfolio manager at Tortoise Capital Advisors, while talking to CNBC in a latest program, said that he sees a big opportunity for AI in the energy industry. Thummel said that while everybody keeps talking about technology infrastructure when it comes to AI, they “forget” about energy infrastructure.
Thummel said that AI will create electricity demand that will in turn fuel the need for natural gas.
“There is no AI without EI (energy infrastructure) because you need this critical infrastructure to provide the fuel to keep their lights on and electricity flowing 24 hours a day.”
Talking about energy stocks, Thummel said a lot of them are “pretty simple stories” as they generate a lot of cash flows and return a significant portion of it back to shareholders.
Asked about the cyclical nature of the industry, Thummel said that global energy demand is currently at its peak and has grown for 38 years over the last four decades. The analyst said the demand for energy increases every year across the world. Thummel said the US has become the largest energy exporter and he does not see that changing for a long time.
Thummel also shared some of his top picks in the energy sector. For this article we scanned his portfolio and chose his top AI energy infrastructure picks. With each stock we have mentioned the total number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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9. Williams Companies Inc (NYSE:WMB)
Number of Hedge Fund Investors: 26
With an over 4.4% dividend yield, Williams Companies Inc (NYSE:WMB) is one of the best AI energy infrastructure stocks recommended by Tortoise Capital Advisors’ analyst Rob Thummel.
Goldman Sachs believes Williams Companies Inc (NYSE:WMB) stands to benefit from an expected surge in natural gas demand for data centers.
During Q1 earnings call Williams Companies Inc (NYSE:WMB) management talked extensively about data center-driven demand. Here are a few important excerpts relevant to the topic:
“These markets are experiencing increasing gas demand from power generation and the reshoring of industrial loads. Since the time of our open season, the large utilities that we serve in this area have come back and provided dramatic increases to their generation needs based on data centers to be built in the region, as well as reshoring of industrial markets.”
“Each individual data center isn’t going to show up as a big pool and demand given the size and scale of most of these big transmission systems. So it is going to be the collective amount of data centers in these markets that’s going to show up. But there certainly is a lot of fury going on right now, I would say, both with our utility customers. And we certainly are working closely with them to make sure that we can serve their needs and the growth in their needs. I would tell you that it’s broader than even though data centers and AI gets all the hype, it’s actually broader than that in terms of a lot of reshoring of industrial loads that is occurring as well.”
Read the full transcript here.
8. Energy Transfer LP Unit (NYSE:ET)
Number of Hedge Fund Investors: 32
Energy Transfer is one of the stocks in Tortoise Capital’s portfolio.
Mizuho also added the stock to its top picks list and gave an Outperform rating. The firm set a $20 price target on the stock, saying Energy Transfer LP Unit (NYSE:ET) improved leverage outlook should allow more aggressive capital return beyond the current 3- 5% distribution growth rate.
Energy Transfer LP Unit (NYSE:ET) has an over 7% dividend yield. During the first quarter, the company saw revenue growth of a whopping 13.9% year-over-year. Gross margin increased from 17.7% to 18% year-over-year, while the operating margin expanded from 10.86% to 11%. Cash flow from operations jumped from $3.35 billion to $3.78 billion over the same period.
Energy Transfer LP Unit (NYSE:ET) is being pitched as an AI stock in the energy industry as the rise of data centers will increase energy demand, helping ET. According to an estimate, gas demand for electricity to run data centers is expected to increase by a whopping 8 billion cubic feet a day by 2030.
Last month, Bank of America published a list of stocks poised to benefit from the electrification theme of future technology, driven by AI, data centers and push for electrification. BofA picked Energy Transfer LP Unit (NYSE:ET) for this theme under the oil and gas category.
Energy Transfer LP Unit (NYSE:ET) remains one of the most notable players in the industry. During the March quarter, all segments of ET grew, with net income and adjusted EBITDA increasing by 11% and 13% on a YoY basis, respectively. Energy Transfer LP Unit (NYSE:ET) saw record volumes in its crude pipeline segment.
Energy Transfer LP Unit (NYSE:ET) bulls also argue that just 10% of ET business is exposed to the volatile commodities sector. Energy Transfer LP Unit (NYSE:ET) has also raised its full-year 2024 adjusted EBITDA guidance. Energy Transfer LP Unit (NYSE:ET) expects the metric to total in the range of $15.0 billion and $15.3 billion, compared to the previous range of between $14.5 billion and $14.8 billion.
Energy Transfer LP Unit’s (NYSE:ET) earnings are expected to grow 13% next year and 15% over the next five years on a per-annum basis. The stock’s forward P/E of 9.42 is still lower than the industry median 11.88, which makes the stock undervalued given Energy Transfer LP Unit’s (NYSE:ET) growth projections.
7. Targa Resources Corp (NYSE:TRGP)
Number of Hedge Fund Investors: 38
Texas-based midstream energy infrastructure corporation Targa Resources Corp (NYSE:TRGP) is one of the top AI energy infrastructure stock picks of Tortoise Capital Advisors. The company is one of the largest infrastructure companies delivering natural gas and natural gas liquids in the US.
Last month, Argus started covering the stock with a Buy rating and $140 price target. Targa Resources Corp (NYSE:TRGP) has strong project backlog and plans to buy back shares. Argus analyst John Staszak expects the company’s EBITDA will exceed management’s $3.7B-$$3.9B guidance, driven by strong production in the Permian Basin.
The analyst said many of Targa Resources Corp (NYSE:TRGP) assets are focused on some of the most productive U.S. oil and gas formations and connected with important natural gas liquids facilities.
Targa Resources Corp (NYSE:TRGP) is a key player in the energy transportation industry which is expected to grow at a CAGR of about 5.9% through 2030, according to a report by Research and Markets.
During the last quarter of 2023, Targa Resources Corp (NYSE:TRGP) adjusted EBITDA jumped 14% to $959.9 million. In the Permian, natural gas throughput climbed 11% to 5.3 Bcf/d, and NGL throughput jumped 15% to 708.9 MBbl/d. The company generated about $709.7 million in distributable cash flow for the quarter and $2.62 billion for the year. Free cash flow was $73.7 million for the quarter and $392.7 million for the year.
Wall Street expects Targa Resources Corp (NYSE:TRGP) revenue to grow by 14% next year, while earnings are expected to rise 44% next year and 36% over the next five years on a per-annum basis. Based on these growth estimates, the stock’s forward P/E 26.5 isn’t outlandishly high.
6. EQT Corp (NYSE:EQT)
Number of Hedge Fund Investors: 41
Natural gas company EQT Corp (NYSE:EQT) is one of the best AI energy infrastructure stocks in Tortoise Capital Advisors portfolio.
Goldman Sachs earlier this year named EQT Corp (NYSE:EQT) among the companies that will benefit from the surge in natural gas on the back of data centers. Goldman Sachs believes natural gas will provide about 60% of the new electricity demand from data centers.
During Q1 earnings call EQT Corp (NYSE:EQT) management talked in details about how data centers and AI would boost its business.
Along with the material cost-structured vantage, the combination of EQT and Equitrans will also create an integrated well-to-watt solution that will help enable and power growing demand associated with the data center and artificial intelligence booms that are burgeoning across the Southeast and Mid-Atlantic regions of the United States.
Our base case view suggests the proliferation of data centers, along with growth in other electricity-intensive markets, such as electric vehicles, to drive an incremental 10 Bcf per day of natural gas demand by 2030, while there is a plausible upside case that could take this number up to 18 Bcf per day. This means growth in the power generation segment could exceed LNG exports as a bullish demand catalyst for the natural gas market this decade, and this structural base-low demand growth story resides at the doorstep of our asset base. Our 1.2 Bcf per day of capacity on MVP, along with the long-term firm sales arrangements we announced with investment grade utilities last year, means EQT Corp (NYSE:EQT) low emissions natural gas will be a key facilitator of the data center buildout occurring in the Southeastern United States and will give us significant exposure to premium Transco Zones 4 and 5 price points.
Read the entire earnings call transcript here.
EQT Corp (NYSE:EQT) shares have lost about 4% this year. There have been concerns about lower natural gas demand amid warner winters. However, analysts believe natural gas demand will begin to increase in early 2025 while AI-driven electricity demand surge is almost guaranteed to help EQT Corp (NYSE:EQT) solve demand-related headwinds. EQT is behind a pure-play Marcellus Shale natural gas field in Appalachia. EQT Corp (NYSE:EQT) controls approximately 200,000 acres in northeast Pennsylvania, around 70,000 acres in eastern Ohio, 460,000 acres in southwest Pennsylvania, and 370,000 acres in West Virginia.
Average analyst price target on the stock is $44, which presents a 20% upside potential from the current levels.
5. Devon Energy Corp (NYSE:DVN)
Number of Hedge Fund Investors: 44
Devon Energy is also among the top energy picks of Tortoise Capital.
Upstream energy giant Devon Energy Corp (NYSE:DVN) is a notable dividend stock popular among hedge funds. During the first quarter, the company’s production beat its guidance by 4%, driven by strong activity in the Delaware Basin. Devon’s FCF hit $844 million, representing its 15th consecutive quarter of strong FCF generation. Devon Energy Corp (NYSE:DVN) also increased its 2024 production guidance to about 665 thousand barrels / day. Devon Energy Corp (NYSE:DVN) is allocating a whopping 30% of the FCF for shareholder returns, with $3 billion share buyback authorization in place. Analysts believe Devon Energy Corp (NYSE:DVN)’s low net debt-to-EBITDAX of 0.7x and high growth estimates make it an undervalued play.
Devon Energy Corp (NYSE:DVN) is currently trading at a P/E multiple of 8.9, lower than Devon Energy Corp’s (NYSE:DVN) five-year average P/E of 10.84 as well as the industry mean of 10.73. Wall Street analysts have an average price target of $58.45 for Devon Energy Corp (NYSE:DVN), about 20% higher than the stock’s current levels. Devon Energy Corp (NYSE:DVN) has a $3 billion share buyback authorization in place, which is about 10% of its outstanding shares. In the first quarter alone Devon Energy Corp (NYSE:DVN) returned $430 million to shareholders through dividends and buybacks.
As of the end of the first quarter of 2024, 44 hedge funds tracked by Insider Monkey reported owning stakes in Devon Energy Corp (NYSE:DVN).
