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Natural Gas Powering AI Data Centers: 3 Midstream Stocks to Gain
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Analysts and investors have observed that during recent earnings calls, natural gas and oil pipeline companies have addressed the rising demand for electricity driven by data centers processing AI applications. With natural gas continuing to contribute significantly to electricity generation in the United States, it is interesting to analyze how midstream energy stocks with extensive natural gas pipeline networks are poised to gain.
AI Data Centers Demand Huge Electricity
Several factors contribute to the significant electricity consumption by AI data centers. Deep learning and other AI workloads demand extensive computational power, requiring powerful processors such as Graphics Processing Units (GPUs) and Tensor Processing Units (TPUs) to perform billions of calculations during the training of large neural networks. This intense processing activity results in high electricity consumption.
Additionally, data storage systems, particularly those optimized for high-speed access and redundancy, consume substantial amounts of electricity, contributing significantly to overall energy usage.
Furthermore, high-performance processors generate considerable heat, necessitating extensive cooling systems to maintain optimal temperatures and prevent hardware damage. However, these cooling systems themselves consume a significant amount of electricity.
Natural Gas Pipeline Stocks to Gain
As the popularity of AI data centers continues to soar in the forthcoming years, the need for electricity is anticipated to multiply significantly, placing inevitable strain on the transmission grid. Consequently, to meet the increased demand for electricity, some utilities may find it necessary to invest in additional natural gas power plants. This, in turn, will drive up the demand for midstream infrastructures such as pipeline networks, essential for supplying gas to these plants.
With an extensive network spanning 33,000 miles, The Williams Companies operates a vast system of natural gas pipelines. As a result, WMB plays a crucial role in transporting a significant portion of the nation's natural gas to strategic regions, including areas where this resource is utilized in the production of low-carbon electricity. The Williams Companies believes that the rate at which the demand for electricity is increasing each year in this decade is three times greater than in previous decades, thanks to the rise of new, large-load data centers.
Enbridge, in its first-quarter earnings call, acknowledged the fact that there will be a material increase in demand for power generation following the expansion and development of data centers and generative AI. ENB's gas transportation business places it in a favorable position to capitalize on the opportunity, as about 45% of North America's natural gas-powered electricity generation sites are situated within 50 miles of the company's midstream assets.
Kinder Morgan foresees that by 2030, data centers will consume approximately 20% of the electricity in the United States, a significant increase from the 2.5% recorded in 2022. Given the expected reliance on natural gas for electricity generation, KMI, one of the foremost operators of natural gas pipelines in the country, is strategically positioned to benefit.
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Natural Gas Powering AI Data Centers: 3 Midstream Stocks to Gain
Analysts and investors have observed that during recent earnings calls, natural gas and oil pipeline companies have addressed the rising demand for electricity driven by data centers processing AI applications. With natural gas continuing to contribute significantly to electricity generation in the United States, it is interesting to analyze how midstream energy stocks with extensive natural gas pipeline networks are poised to gain.
AI Data Centers Demand Huge Electricity
Several factors contribute to the significant electricity consumption by AI data centers. Deep learning and other AI workloads demand extensive computational power, requiring powerful processors such as Graphics Processing Units (GPUs) and Tensor Processing Units (TPUs) to perform billions of calculations during the training of large neural networks. This intense processing activity results in high electricity consumption.
Additionally, data storage systems, particularly those optimized for high-speed access and redundancy, consume substantial amounts of electricity, contributing significantly to overall energy usage.
Furthermore, high-performance processors generate considerable heat, necessitating extensive cooling systems to maintain optimal temperatures and prevent hardware damage. However, these cooling systems themselves consume a significant amount of electricity.
Natural Gas Pipeline Stocks to Gain
As the popularity of AI data centers continues to soar in the forthcoming years, the need for electricity is anticipated to multiply significantly, placing inevitable strain on the transmission grid. Consequently, to meet the increased demand for electricity, some utilities may find it necessary to invest in additional natural gas power plants. This, in turn, will drive up the demand for midstream infrastructures such as pipeline networks, essential for supplying gas to these plants.
3 Stocks in the Spotlight
Considering the backdrop, it is advisable to keep an eye on major energy companies likeThe Williams Companies, Inc. (WMB - Free Report) , Enbridge Inc. (ENB - Free Report) and Kinder Morgan, Inc. (KMI - Free Report) , which could be a huge beneficiary of this AI trend. Each stock presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
With an extensive network spanning 33,000 miles, The Williams Companies operates a vast system of natural gas pipelines. As a result, WMB plays a crucial role in transporting a significant portion of the nation's natural gas to strategic regions, including areas where this resource is utilized in the production of low-carbon electricity. The Williams Companies believes that the rate at which the demand for electricity is increasing each year in this decade is three times greater than in previous decades, thanks to the rise of new, large-load data centers.
Enbridge, in its first-quarter earnings call, acknowledged the fact that there will be a material increase in demand for power generation following the expansion and development of data centers and generative AI. ENB's gas transportation business places it in a favorable position to capitalize on the opportunity, as about 45% of North America's natural gas-powered electricity generation sites are situated within 50 miles of the company's midstream assets.
Kinder Morgan foresees that by 2030, data centers will consume approximately 20% of the electricity in the United States, a significant increase from the 2.5% recorded in 2022. Given the expected reliance on natural gas for electricity generation, KMI, one of the foremost operators of natural gas pipelines in the country, is strategically positioned to benefit.