What’s the most attractive AI energy stock right now?
Seeking Alpha analysts Louis Gerard, RI Research, and Michael Del Monte offer their picks.
Louis Gerard: This might be an unpopular opinion right now, but I think many companies operating in the coal industry are offering great exposure and great value for investors.
The first one that comes to mind is Alliance Resource Partners (ARLP), which operates low-cost mines mainly in Appalachia and the Illinois Basin, supplying utilities that have been providing electricity to AI data centers. The company also just bought a participation in a 2.7 gigawatt power plant that should have direct exposure to the excess demand required from the sheer computational power of data centers. It helps that it also pays a nearly 12% distribution yield.
Other names that would fit the bill are Peabody Energy (BTU) and Natural Resource Partners (NRP), which offer great values and have seen the terminal decline of coal delayed for the medium term, thus providing excess cash flows to investors.
RI Research: I think that the largest midstream players in North America, like Enbridge (ENB) and Energy Transfer LP (ET), offer great value amid AI-related energy demand tailwinds. These companies have solid natural gas exposure (gathering, transportation, processing), which many industry experts believe will be the primary energy source powering the AI revolution.
I like large midstream players because of their predictable performance, as revenues are mostly fee-based, meaning that earnings are not vulnerable to the price volatility of energy commodities. These stocks currently offer compelling forward dividend/distribution yields, which appear to be safe given the historically robust FCF-generating capacity of ENB and ET.
Michael Del Monte: The energy sector has a lot to gain from the growing AI data center footprint.
From a power generation perspective, GE Vernova (GEV) and Siemens Energy (OTCPK:SMNEY) can benefit from the broad increase in natural gas turbines for generating electricity. Baker Hughes (BKR) develops small-scale gas turbines and may benefit in the near term given the multi-year backlogs of GEV and SMNEY.
CNX Resources (CNX) could be a unique approach to investing in energy relating to the AI theme. The firm is partnering with NuBlu to generate compressed natural gas, or CNG, and liquefied natural gas, or LNG, using modular facilities at the well site, which then could be transported to gas-fired facilities used by AI data centers.
For a vertical approach, Chevron (CVX) is purchasing seven industrial gas turbines that can be used to support behind-the-meter power generation for AI data centers.
From a power transmission and distribution perspective, Centuri (CTRI) is an EPC firm that specializes in maintenance projects for the sector and may benefit greatly from the growing installed base.