AI could drive strong growth in these undervalued stocks.

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NVIDIA The company is one of the biggest beneficiaries of the artificial intelligence (AI) megatrend. Its chips are in high demand, it is He led the semiconductor company's phenomenal revenue and profit growth, making NVIDIA one of the world's most highly regarded companies.

but, NVIDIA It's not just businesses that are benefiting from the AI ​​boom. AI training models and applications Run The company's chips are housed in data centers, which are buildings that consume huge amounts of electricity, especially when they support AI.

This is likely to lead to a surge in electricity demand in the coming years. Energy stocksIncluding the undervalued natural gas sector. Several How to capitalize on a potential AI-driven surge in natural gas demand.

Accelerating the transition to clean energy

Demand for natural gas has been growing steadily for many years. Several factors have driven this growth, including the displacement of coal. Cleaner Burning Fuel and Ascent Liquefied Natural Gas Exports. Demand for gas is likely to accelerate in the future, in part due to the power of AI data centers.

A chart showing the potential increase in gas demand due to AI data centers. A chart showing the potential increase in gas demand due to AI data centers.

Data source: EQT Corp.

As this slide shows, demand from data centers alone could increase by 10 to 18 billion cubic feet per day (bcf/d) by 2030. Potentially This growth rate exceeds the growth rate the industry has achieved in the past decade.

Many companies in the natural gas industry should benefit from increased gas demand. One company that could benefit is the nation's largest gas producer. EQT (NYSE: EQT)The company manages more than 1.1 million acres in the natural gas-rich Appalachian region (Pennsylvania, Ohio, and West Virginia). This large location in one of the world's leading natural gas producing regions allows the company to Very low cost (equivalent to $1.36 per million cubic feet).

EQT is also ideally located for gas supplies to power its data centers: the company has access to pipelines (including, soon, its own pipelines) Equitrans Midstream Distributing data centers acquired through acquisitions or contracts with third-party pipeline operators across multiple data center clusters.

A slide showing EQT's strategic position to supply gas to data centers. A slide showing EQT's strategic position to supply gas to data centers.

Data source: EQT.

EQT should generate significant free cash flow over the next few years, driven by growing gas demand and other factors, including its ongoing contract with Equitrans and contracts to supply new LNG export facilities. The company estimates it can generate cumulative free cash flow of $7.5 billion to more than $25 billion between 2025 and 2029, assuming gas prices average between $2.75 and $5 per MMBtu.

That high level will become more achievable if AI realizes its potential. This strong cash flow can help fund debt repayments, dividend payments, and share buybacks, which in turn can fuel growth. Strong Total Returns to investors.

Gas transportation to demand areas

Natural gas Pipeline Company Another sector that could benefit greatly from the growing electricity demands created by AI data centers is the catalyst that will increase capacity in existing pipelines and provide new expansion opportunities.

One of the many potential beneficiaries is Williams (NYSE: WMB)The company operates the Transco Pipeline, which runs along the East Coast, serving high-demand areas like Atlanta, Charlotte, North Carolina and the Greater North Carolina metropolitan area, which are also hotbeds for data centers and tend to be located near major cities.

In particular, Transco could be key to supplying gas to Virginia's data centers. Dominion Energy The company expects electricity demand from facilities within its service area to increase 2.5-fold over the next 10 years.

Williams the current There are seven Transco expansion projects underway (plus three more on other major natural gas transmission pipelines), 30 more gas transmission pipeline projects in development, plus other gas infrastructure projects to enhance our position in the Gulf of Mexico, the Western U.S. and the Northeast (operated by EQT).

These projects have attracted a lot of attention to Williams. The pipeline giant expects earnings growth of 5% to 7% annually over the long term, which should provide the impetus to raise its high-yield dividend (which has been around 4.5% recently) by a similar percentage. The combination of dividend income, earnings growth, and a potential valuation appreciation could position Williams to generate solid total returns over the next few years.

Potential for growth through AI

Nvidia is an early beneficiary of the AI ​​boom, but the technology is likely to drive growth in many other sectors, including natural gas. While the market has yet to fully realize the growth potential of clean fuels, investors could get in early and reap the benefits of high-octane fuels. EQT and Williams stand out as the biggest beneficiaries because of their proximity to where technology companies are clustered. Under Construction Data center.

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Matt DiLallo has invested in EQT. The Motley Fool has invested in and recommends EQT and Nvidia. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.

Beyond Nvidia: AI could drive strong growth in these undervalued stocks was originally published by The Motley Fool.

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