Companies like Nvidia (NASDAQ:NVDA) with needed microchips have been seen as the “picks and shovels” of the artificial intelligence (AI) trade. However, a less obvious AI requirement, gas pipelines, is finally getting investor attention. Pipeline stocks have emerged in recent weeks as the surprise stars of the strong energy sector, leaving oil producers, refiners, and even giants like Exxon Mobil (NYSE:XOM) in the dust.
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This unexpected outperformance can be attributed, in part, to a new and unexpected driver: the insatiable demand for power to feed Artificial Intelligence (AI) data centers.
Data Centers Drive Demand
As AI continues its meteoric rise, the data centers that house and run these powerful programs require massive amounts of electricity. Natural gas, currently the leading source of electricity generation in the U.S., is perfectly positioned to meet this growing demand.
Pipeline Plays
After years of pipeline infrastructure stocks stuck in the doldrums, the AI revolution translates to good news for gas pipeline companies. Leading players like Kinder Morgan (NYSE:KMI) are experiencing record-breaking winning streaks, with their stock price rising over 5% in the past month alone. Other pipeline operators, like Williams (NYSE:WMB) and Enbridge (NYSE:ENB), are experiencing similar surges, far outperforming the broader energy sector.
Analysts’ Affirmation
Analysts point to the surge in electricity demand from data centers as a key factor and highlight the potential for this trend to continue for years to come. With demand expected to double or triple in the next five years, the current infrastructure could struggle to keep pace.
This potential strain could necessitate the construction of new natural gas plants and pipelines to meet the growing needs of AI-powered data centers.
Impact on Other Sectors in the Energy Industry
The AI boom isn’t limited to just gas pipelines. Similar trends are impacting other sectors within the energy industry. Nuclear operators like Constellation Energy (NYSE:CEG) and renewable energy companies like Brookfield Renewable Partners (NYSE:BEP) have also seen a boost in investor sentiment.
Analysts like Mizuho’s Gabe Moreen see the data center trend as a powerful driver of investor confidence in the natural gas pipeline sector. While the full impact of this demand hasn’t materialized yet, anticipation is pushing long-term natural gas futures prices significantly higher. This indicates an expectation of sustained demand in the years to come.
Growing Pipeline Needs
Midstream companies, those that manage pipelines and natural gas storage facilities, are already reporting increased inquiries from customers seeking additional gas supplies. This anecdotal evidence suggests that the AI data center boom could translate into a significant increase in demand for natural gas transportation services.
Key Takeaway
While traditional energy giants may be doing okay, the rise of AI has driven natural gas pipeline companies to excel. The latest AI picks and shovels trade presents a unique opportunity for investors who can connect the dots on where the next demand may come from. By focusing on the infrastructure necessary to support the future of AI, gas pipeline stocks could be a compelling option for investors seeking to capitalize on the latest technological revolution.
