3 Energy Pipeline Stocks to Benefit from Artificial Intelligence (AI) in 2025

When it comes to looking at the stocks that will benefit the most artificial intelligence (AI)the technology sector is front and center. However, it is not the only sector that benefits.

Companies in the mid-energy space are also poised for a nice boost because AI training and inference are very energy-intensive endeavors. according to Bank of AmericaElectricity demand for data centers is expected to increase by 10% to 15% annually by 2030 and could account for 5% of all global energy demand by 2030.

In order to meet growing energy needs, utilities and data center operators are increasingly turning to natural gas. This growing demand for natural gas, in turn, should lead to more pipeline projects to transport that natural gas to where it is needed.

Let’s take a look at three medium-sized companies that are very well positioned to take advantage of the growing demands for power from AI.

Energy transfer (NYSE: ET) operates one of the largest integrated intermediate systems in the US. The system includes nearly 107,000 miles of natural gas pipelines and 235 billion cubic feet (Bcf) of working storage capacity. Importantly, the company has a strong position in Texas and the Permian Basin, giving it access to some of the cheapest natural gas in the country. The Permian is largely an oil field, and due to a shortage of pipelines to take natural gas, natural gas prices in the nearby Waha Center were negative for several stretches through 2024.

Not surprisingly, given Energy Transfer’s strong position in this region, it has been receiving many inbound inquiries about potential natural gas pipeline projects to bring natural gas to both power producers and potential new data centers. In its latest earnings call, the company said it had requests to connect to about 45 power plants it doesn’t currently serve in 11 states and more than 40 potential data centers in 10 states. He noted that many of these power plants and data centers were within two or three miles of one of his pipelines. It also said it was seeing increased demand in several of its existing pipelines due to AI data center demand.

Meanwhile, in December, Energy Transfer announced a new $2.7 billion project to connect Permian natural gas to other markets to support data center and power plant growth in Texas. The first phase of the project is expected to be operational by the end of 2026.

Business product partners (NYSE: EPD) is another large midstream operator with a strong position in Texas and the Permian. In fact, most of its natural gas pipeline and storage assets are located in Texas or along the Gulf Coast.

In its latest conference call, the company said the early signs of AI-derived energy demand “were some of the most promising signs (seen) in natural gas in a long time.” He added that while it is popular to talk about AI energy demand, it is one of the few companies with pipeline and storage assets that is actually seizing this opportunity.

He added that it was particularly well positioned to serve the Dallas-Fort Worth and San Antonio areas. He noted that data centers in the Dallas area were consuming the fourth most energy today, but that the area was second for projected energy expansion. San Antonio, on the other hand, was seventeenth in power, but ninth in projected power.

Meanwhile, Enterprise Products Partners has entered more of a growth phase, starting to increase capital expenditures (capex) given the growth opportunities it is seeing. After significantly reducing capital investment during the height of the COVID-19 pandemic, the company plans to increase it by $3.5 billion to $4 billion this year. Most of these projects are centered around the Permian.

Pipe going to the processing plant. — Image source: Getty Images.

Not all US data centers will be built in Texas and Williams Companies (NYSE: WMB) It probably owns the most valuable natural gas pipeline system in the US. Its Transco pipeline system spans the Southeast from New York to southern Texas, bringing natural gas to markets in 13 states. The 10,000-mile system transports 15% of the natural gas in the US

The pipeline plays an important role in transporting natural gas from the Marcellus Shale to East Coast markets. The pipeline is so well located that Williams is constantly able to build new projects connected to its Transco system. In fact, between the second half of 2024 and 2029, nine Transco expansion projects are scheduled.

The Southeast isn’t the only place Williams is active, however, as it has also benefited in the US West with the expansion of its MountainWest and Northwest pipelines. Last quarter, he said major power generators in the MountainWest region expected a huge increase in power generation demand due to increased AI workloads.

Energy Transfer, Enterprise Products Partners and Williams all have strong growth in the face of increased demand for natural gas. At the same time, the stock is relatively cheap on a historical basis. Midstream master limited partnerships (MLPs) traded at an average business value to an EBITDA multiple of 13.7 between 2011 and 2016. MLP Energy Transfer and Enterprise are currently trading well below this level.

WMB EV to EBITDA Chart (forward). — Data for YCharts.

Williams trades a bit closer to that historical range, but is structured like a corporation, which tends to have higher valuations.

All three stocks also have solid returns, with Energy Transfer returning 6.6% forward, Enterprise also 6.6% and Williams 3.4%.

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Bank of America is an advertising partner of Motley Fool Money. Geoffrey Seiler has positions in Energy Transfer and Enterprise Products Partners. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has one disclosure policy.

3 Energy Pipeline Stocks to Benefit from Artificial Intelligence (AI) in 2025 was originally published by The Motley Fool

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