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).
4. Diamondback Energy Inc (NASDAQ:FANG)
Number of Hedge Fund Investors: 44
Diamondback Energy Inc (NASDAQ:FANG) is one of the top energy stocks in Tortoise Capital Advisors portfolio.
Diamondback is an oil and gas company and while it is not directly exposed to data centers or AI, a broader shift and demand in the market amid the AI revolution will certainly impact the stock positively. Diamondback Energy Inc (NASDAQ:FANG) is also seeing changes amid electrification in the oil and gas industry. About 95% of its field is on the grid, versus 60% a few years ago, while half of its oil well completion operations and roughly 75% of its drilling equipment are running on grid power.
Diamondback Energy Inc (NASDAQ:FANG) is a high-yield dividend stock, with over 4.5% yield as of July 14.
Diamondback’s strategy is built on four key components: maintaining low-cost production to outcompete rivals, selectively pursuing M&A to expand its footprint and achieve economies of scale, returning significant free cash flow to shareholders, and adopting a flexible approach focused on growth. As a smaller, independent U.S. energy company, Diamondback Energy Inc (NASDAQ:FANG) is rapidly expanding and leveraging its strengths, particularly its prime acreage in the Permian Basin. Diamondback Energy Inc (NASDAQ:FANG) has 10% of its operations in the Delaware Basin in the western Permian, while 90% of its current operations are within the Midland Basin to the east.
ClearBridge Select Strategy stated the following regarding Diamondback Energy, Inc. (NASDAQ:FANG) in its first quarter 2024 investor letter:
Our final addition was Diamondback Energy, Inc. (NASDAQ:FANG), a leading oil and gas producer that agreed to acquire fellow exploration and production company Endeavor Energy Resources in the quarter. The deal should allow Diamondback to capture operating synergies and streamline costs by reducing rig redundancies and optimizing production techniques. Endeavor has previously prioritized double-digit production growth over capital discipline, leading to the quick depletion of its core inventory in the oil-rich Midland Basin. Diamondback’s focus on free cash flow generation should allow the combined entity, which we consider an evolving opportunity, to rein back its production levels and extend the longevity of this high-quality acreage to fund cash returns. Diamondback replaces the energy exposure the portfolio will lose with the pending acquisition of top 15 holding Pioneer Natural Resources by Exxon Mobil.
3. Chevron Corp (NYSE:CVX)
Number of Hedge Fund Investors: 62
Chevron Corp (NYSE:CVX) is one of the top energy stocks in Tortoise Capital Advisors portfolio.
Chevron stands to benefit from an expected surge in natural gas demand amid the rise of data centers.
Talking to CNBC in May, Chevron Corp (NYSE:CVX) CEO Mike Wirth said that natural gas demand was expected to surpass expectations as electricity consumption surges from artificial intelligence and data centers.
“It’s a little hard to quantify right now because this is evolving so quickly on the AI side. But I think demand for natural gas is likely to be higher than what people have been estimating up until now.”
With 37 years of consistent dividend increases, oil giant Chevron Corporation (NYSE:CVX) is one of the best dividend growth stocks to buy according to hedge funds. Chevron Corporation (NYSE:CVX) has been paying dividends without a break since 1984. Its annual dividend growth rate over the past three years is 5.40%. Chevron Corporation (NYSE:CVX)’s payout ratio is about 56%, which is higher than the industry mean of 45%, but given the company’s huge cash flows and strong fundamentals, dividend safety isn’t a major concern for Chevron Corporation (NYSE:CVX) investors.
Chevron Corp’s (NYSE:CVX) management has pledged fiscal discipline and caution amid massive swings in oil and commodity prices. Analysts believe Chevron Corp (NYSE:CVX) remains well-positioned in the Permian Basin and DJ Basin, with strong production numbers posted in the first quarter. In April, Chevron Corp’s (NYSE:CVX) management said it expects $80/BBL Brent in 2024 and guided for a 4% to 7% increase in total production in the year. Analysts believe this guidance was conservative as continued supply cuts from oil producers would support oil prices.
Analysts also believe now that Hess shareholders have approved Chevron Corp’s (NYSE:CVX) $53 billion acquisition of the company, the deal could go through and help Chevron expand and achieve its goals in Guyana.
Chevron Corp (NYSE:CVX) is expected to see earnings growth of 10.57% in 2025, much higher than Exxon’s 6.72% earnings growth. Given all these growth catalysts, strong fiscal position and dividends, the stock is undervalued, at a forward P/E ratio of 13.89.
Carillon Eagle Growth & Income Fund stated the following regarding Chevron Corporation (NYSE:CVX) in its fourth quarter 2023 investor letter:
“Chevron Corporation (NYSE:CVX) traded lower, along with oil prices, and issued a disappointing earnings announcement due to overseas refining losses. Separately, the company announced an agreement to buy another energy company with operations offshore of Guyana, as well as in North Dakota, the Gulf of Mexico, and the Gulf of Thailand. This is a strategic acquisition for very little takeout premium.”
2. Cheniere Energy Inc (NYSE:LNG)
Number of Hedge Fund Investors: 69
Cheniere Energy Inc (NYSE:LNG) is one of the best AI energy infrastructure stocks to buy according to Tortoise Capital Advisors.
In a recent earnings call, the company’s management talked about AI-driven demand:
“But we look at things, We see roughly a doubling of demand globally by 2030 from about 2% to about 4% of power for data centers, obviously, driven in part by these more power-hungry chips. And we think that the easiest places and all the guys who are developing them, by the way, have huge teams that are looking for pockets of opportunity where there is the ability to add this capacity. One of the more interesting dynamics, if you will, is that Japan has been forecasting a dramatic decline in its power use by about 12% from ’22 to 2030. The easiest places in the world to add this capacity is where this capacity exists.”
Wolfe Research expects Cheniere Energy Inc (NYSE:LNG) to benefit if Donald Trump assumes the Presidential office.
Cheniere Energy Inc (NYSE:LNG) is one of the biggest LNG companies in the world. The stock is set to grow amid rising demand of LNG across the world. According to a latest report by Shell, the global gas demand is expected to rise 50% by 2040 amid increasing LNG appetite in Asia. Cheniere Energy Inc (NYSE:LNG) is operating with a wide moat since it’s the second biggest LNG company with huge production infrastructure. Cheniere has facilities with 45 million metric tonnes per annum as of this year. Its Sabine Pass LNG Terminal in Louisiana has six operational trains. Cheniere Energy Inc (NYSE:LNG) has already secured orders or agreements for 95% of its anticipated production capacity extending into the middle of the year 2030.
During its Q1 earnings call Cheniere Energy Inc (NYSE:LNG) talked about this and guidance:
Today, we are reconfirming our full year 2024 guidance ranges of $5.5 billion to $6 billion in consolidated adjusted EBITDA and $2.9 billion to $3.4 billion in distributable cash flow. As we’ve noted previously, 2024 represents our most contracted year-to-date. We still expect 2024 to represent a trough year for EBITDA as we expect our results to trend higher after this year as Stage 3 commences and eventually reach its run rate by the end of 2026.
As a reminder, our operating and financial results and forecast reflect some degree of seasonality as typically higher winter production at our facilities, coupled with typically higher pricing international markets, can provide for a somewhat seasonal weighting of our results to the colder quarters versus the hotter ones. For the balance of the year, we don’t expect meaningful changes to our earnings forecast for the remaining 3 quarters with an immaterial amount of unsold capacity remaining. We still expect to produce approximately 45 million tonnes of LNG this year, inclusive of planned maintenance at both sites, and our guidance continues to reflect only contributions from completed portfolio optimization activities as we do not forecast potential contributions from future opportunities.
TimesSquare Capital U.S. Focus Growth Strategy stated the following regarding Cheniere Energy, Inc. (NYSE:LNG) in its first quarter 2024 investor letter:
“The strategy’s top detractor was the -5% retrenchment from Cheniere Energy, Inc. (NYSE:LNG), which operates liquid natural gas (LNG) liquefaction facilities for the global transportation of LNG. While revenues and earnings were as expected, management’s initial guidance for the new fiscal year was lower than anticipated. Cheniere was conservative—appropriately so in our view—regarding plant volumes as election-year noise surrounding the regulatory environment could dampen LNG exploration and export activities.”
1. Exxon Mobil Corp (NYSE:XOM)
Number of Hedge Fund Investors: 81
XOM is an important name in Tortoise Capital’s portfolio.
With over four decades of consistent dividend growth, Exxon Mobil Corp (NYSE:XOM) is one of the best dividend aristocrat stocks to buy now. Over the past five years, Exxon Mobil Corp’s (NYSE:XOM) dividend growth rate came in at 2.20% per year. Exxon Mobil Corp’s (NYSE:XOM) future looks bright. Exxon Mobil Corp (NYSE:XOM) has pledged a whopping $20 billion and $25 billion in annual capex spending through 2027. During the first nine months of last year, Exxon Mobil Corp’s (NYSE:XOM) FCF came in at $28.1 billion. Out of that, just $11.1 billion were paid in dividends. Exxon Mobil Corp’s (NYSE:XOM) payout ratio is just 46%, which means it’s spending for business growth, a healthy sign.
As of the end of the first quarter of 2024, 81 hedge funds reported owning stakes in Exxon Mobil Corp (NYSE:XOM). The biggest stakeholder of Exxon Mobil Corp (NYSE:XOM) during this period was Ken Fisher’s Fisher Asset Management which owns a $3 billion stake in Exxon Mobil Corp (NYSE:XOM).
Madison Dividend Income Fund stated the following regarding Exxon Mobil Corporation (NYSE:XOM) in its first quarter 2024 investor letter:
“This quarter we are highlighting Exxon Mobil Corporation (NYSE:XOM) as a relative yield example in the Energy sector. XOM is a leading integrated oil and natural gas company. It has upstream assets that develop and produce oil and natural gas, along with downstream refining and chemical manufacturing assets. We believe it has attractive low-cost acreage in the Permian basin and has a sizeable growth opportunity in Guyana. Further, we think XOM has a sustainable competitive advantage due to size and scale, and its ability to integrate refining and chemical assets provides a low-cost advantage versus competitors.
Our thesis on XOM is that it will grow production volumes of oil and gas moderately over the next few years, while limiting excessive capital investment that plagued the industry from 2014-2020. Production growth will come from its 2023 acquisition of Pioneer Natural Resources, which is the largest producer in the Permian basin. XOM plans to double its Permian output by 2027, to 2 million barrels per day. Capital spending will be limited to $20-25 billion per year through 2027, which should allow for significant amounts of cash to be returned to shareholders including a $35 billion share repurchase program and continued dividend increases. Higher oil prices would provide a tailwind to our thesis but are not necessary. We think XOM can grow earnings and cash flow if oil prices remain above $60 per barrel…” (Click here to read the full text)
While we acknowledge the potential of Exxon Mobil Corporation (NYSE:XOM), our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than XOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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