AI Boom Fuels Gas Demand: WMB, ENB, KMI Pipeline Stocks to Gain?

As the demand for data processing surges with the rapid expansion of artificial intelligence (AI) applications, data centers are encountering significant energy challenges. Natural gas is becoming a key solution in the power strategies of these facilities, providing the reliability, scalability and cost-effectiveness required to support continuous, high-intensity data processing operations.

By integrating natural gas with renewable energy sources, data centers can strike a balance between sustainability goals and operational efficiency, positioning natural gas as a critical component in the sector's future energy landscape. Analysts and investors have observed that major natural gas and oil pipeline companies are addressing the increasing electricity needs of AI-powered data centers, as highlighted on recent earnings calls.

Leading energy companies such as The Williams Companies Inc. WMB, Enbridge Inc. ENB, and Kinder Morgan Inc. KMI are well-placed to capitalize on this AI-driven demand.

Energy Demands of AI: Computing, Storage & Cooling

AI data centers have become significant electricity consumers due to several key factors. Firstly, deep learning and other AI workloads require immense computational power. High-performance processors, such as graphics and tensor processing units, are essential to handle the billions of calculations needed to train large neural networks. This computational intensity drives up electricity usage substantially.

Secondly, data storage systems, particularly those designed for high-speed access and redundancy, represent another major source of energy consumption. These storage systems are critical for rapidly retrieving and processing large datasets but require substantial power to operate efficiently.

Finally, the heat generated by high-performance processors necessitates robust cooling systems to maintain optimal operating temperatures and avoid hardware damage. These cooling systems, while essential, add another layer of electricity consumption, further contributing to the overall energy demands of AI data centers.

Natural Gas Pipeline Companies in the Spotlight

As the adoption of AI data centers accelerates, the electricity demand is expected to grow substantially, putting significant pressure on existing transmission grids. To accommodate this rising demand, utilities may be compelled to invest in new natural gas power plants, which would increase the need for midstream infrastructure, such as expanded pipeline networks, to ensure a reliable supply of natural gas to these facilities. This dynamic could create new opportunities for investment in power generation assets and the associated midstream infrastructure needed to support this growing energy consumption.

3 Pipeline Stocks to Keep an Eye on: WMB, KMI, ENB

WMB: Focus on High-Return Projects

Backed by its extensive network of natural gas transportation pipelines, The Williams Companies, carrying a Zacks Rank #3 (Hold),is on a strong footing to capitalize on the huge demand for natural gas from the data centers. The midstream energy giant is facing a surge in demand from multiple regions, particularly in the Southeast and Atlantic, to provide natural gas to new data centers. It intends to maximize the efficiency of its assets by focusing on high-return projects, taking advantage of the strong demand from developers.    

KMI: Strategic Projects to Meet Demand

Kinder Morgan is experiencing a notable rise in natural gas demand, fueled by the expansion of data centers and AI applications. The company is engaged in numerous negotiations to supply more than 5 billion cubic feet per day of natural gas, driven by the energy requirements of data centers and other power needs. The South System 4 Expansion is one of Kinder Morgan's key projects that aims to boost capacity by 1.2 billion cubic feet per day to address the rising demand for power and local distribution in Southeastern U.S. markets. It also carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ENB: Flexible and Scalable Solutions

Enbridge, leveraging its extensive network of midstream assets and its connections to 45% of North America's natural gas power generation, plays a crucial role in supplying natural gas to new data centers. The company, with a Zacks Rank of 3, is in preliminary discussions to support additional capacities and anticipates substantial growth from these opportunities. Enbridge is capitalizing on its capability to supply both natural gas and renewable energy to address the varied power requirements of data centers.

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