While much of Wall Street focuses on AI’s ‘hyperscalers’ like Nvidia, a significant, under-the-radar opportunity has emerged in the energy and infrastructure sectors powering AI’s growth. This article delves into the burgeoning demand for electricity driven by AI data centers, a potential utility mega-merger between NextEra Energy and Dominion Energy, and the expanding role of liquefied natural gas (LNG) exports. It highlights how investments in AI infrastructure and energy have doubled returns in the past year, far surpassing the performance of traditional tech giants.
Welcome to "Power Insider," your exclusive look at the investments, people, and companies driving the global energy sector. In a market often fixated on the latest tech darlings, we're shifting our gaze to the foundational power players fueling the next revolution: Artificial Intelligence.
POWER POINT
Insights from energy insiders
While headlines buzzed with talk of Trump's comments on Iran negotiations, the real pulse behind oil price fluctuations this week was the increasing ship traffic through the Strait of Hormuz. Crude prices began their pullback as hedge funds observed this critical transit picking up, even before political announcements. Thursday saw oil tick higher again on fresh negative headlines, underscoring the importance of monitoring the strait's activity as your primary guide.
However, the broader energy landscape offers far more compelling opportunities than the day-to-day Middle East conflict. Last week, we delved into the immense electricity demands of AI. This week, our journey took us to the heart of the power story: huge liquefied natural gas (LNG) facilities in Louisiana and Texas.
Just days after our visits, NextEra Energy (NEE) made waves with a blockbuster bid to acquire Virginia's Dominion Energy (D). This all-stock deal, valued at approximately $67 billion and creating a combined enterprise of about $420 billion, faces significant regulatory scrutiny. Wall Street analysts from Jefferies express skepticism, citing NextEra’s past challenges with approvals and Dominion’s complex relationship with its home state. Another insider called the deal "surprising" and highlighted the intricate multi-state approval process. Evercore ISI further emphasized the need for approvals from FERC, NRC, FTC/DOJ, and all three of Dominion’s state commissions.
Hot Take → For investors eyeing this space, Jefferies suggests Duke Energy (DUK) and Southern Company (SO) as potentially "safer places" in the near term, regardless of the merger's outcome. One undeniable truth: the lawyers involved in this transaction are set for a substantial payday!
Our deep dive into LNG began before dawn in Port Arthur, Texas, with U.S. Secretary of Energy Chris Wright at Exxon Mobil's massive new Golden Pass export facility. (Security was notably high due to QatarEnergy, the primary owner, having assets in the Middle East impacted by recent events.) Secretary Wright expressed bullish views on China becoming a larger buyer of U.S. crude and the imminent increase in oil supply from Alaska, a topic concurrently explored by Morgan Brennan with ConocoPhillips' CEO Ryan Lance.
VIDEO: Energy Secretary Chris Wright: China will be buying more U.S. crude oil because of Iran
Following this, we traveled 60 miles east to Cameron, Louisiana, to the energy-renowned Calcasieu Pass, site of Commonwealth LNG's groundbreaking for a new export facility. We had the privilege of speaking with Louisiana Governor Jeff Landry, who enthusiastically championed his state's role in driving U.S. LNG exports and its capacity to meet both export demands and the surging electricity needs of AI data centers.
VIDEO: Louisiana Gov. Jeff Landry on new LNG project, AI data center growth
WALL STREET'S TAKE → What if oil and bond yields remain elevated?
The stock market's recent performance has been heavily influenced by energy, with energy stocks up 35% this year, outpacing Information Tech's 16%. As oil prices climb, so do government borrowing costs; the 30-year U.S. Treasury recently hit its highest yield since 2007. Oil is a major inflation driver, directly impacting the bond market.
Infographic: CPI's Energy Component Annualized Rate
Bespoke Investment Research notes that CPI's energy component has surged to a 130% annualized pace in just two months, a spike rivaled only by the aftermath of Hurricane Katrina in 2005.
So, what's next? The market faces a fundamental battle between rising inflation risks and the massive capital spending cycle of AI. If the hundreds of billions invested in AI infrastructure continue unabated, this may overshadow energy and inflation concerns. Goldman Sachs stresses that earnings are currently paramount, with recent rallies correlating to an 8% YTD increase in near-term earnings estimates. However, they warn of potential medium-term weakness, citing historical patterns of stock rallies followed by "soft returns." Evercore ISI's Julien Emanuel is more optimistic, setting a year-end S&P 500 target of 7,750, with an "ultra bull case to 9,000," attributing this to the market's post-pandemic "extreme outcomes" dynamic and suggesting options strategies like the SPY July 775C/725P collar.
My Take → An AI trade involving energy that's doubled your money.
If you've invested in the "AI giants" – the companies building the data centers – you've seen decent gains (7% YTD, 43% over 12 months for an equal-weighted basket). However, if you instead invested in companies building AI infrastructure and energy sources, your returns have been far superior. Over the last year, this basket has literally doubled your money.
While Meta, Microsoft, and Nvidia shares have seen more modest movements or even declines over the past year, the infrastructure list has surged. TeraWulf (WULF) has been a significant contributor, alongside data center builder Equinix (EQIX), engineering and power management firm Eaton (ETN), and cooling specialist Trane (TT). Investor capital has notably shifted towards these foundational AI enablers.
Infographic: AI Infrastructure vs AI Giants Stock Performance
Take a look at the Strait of Hormuz situation: 
VIDEO: Will transits tick up in the Strait of Hormuz?
INSIDE LINE
This week's "Inside Line" features Ben Dell, Managing Partner of Kimmeridge and Executive Chair of Commonwealth LNG. A graduate of St. Peters College, Oxford, Dell shares insights on the $10 billion-plus new LNG export facility:
Infographic: Ben Dell, Managing Partner of Kimmeridge & Executive Chair of Commonwealth LNG, Part 1
Infographic: Ben Dell, Managing Partner of Kimmeridge & Executive Chair of Commonwealth LNG, Part 2
RANDOM, BUT INTERESTING
While the Strait of Hormuz dominates headlines, Asia's often-overlooked Strait of Malacca is actually the world's largest oil and liquids transit point, as JPMorgan commodity analysts highlight.
Infographic: Major Global Oil Chokepoints - Strait of Malacca vs. Strait of Hormuz Oil Transit
THE GRID
Current national average gasoline prices continue their upward trend, with nearly every state at or above $4/gallon: AAA Fuel Prices
Keep an eye on global shipping movements with "the map": MarineTraffic: Global Ship Tracking Intelligence | AIS Marine Traffic
Michigan is opening bids for 1GW of solar power: RFP alert: DTE Energy opens bidding for 1 GW of solar and wind capacity – pv magazine USA
For your mellower evenings, musician Peter Gabriel is back with new music: Peter Gabriel - Won't Stand Down (Bright-Side Mix)
Catch up with more energy content, interviews, and videos from CNBC and Power Insider. You can read last week's Power Insider here: Hyperscalers' AI buildout will require massive amounts of energy. Two under-the-radar stocks will benefit
Note: There will be no Power Insider next week due to the Memorial Day holiday.
