U.S. energy infrastructure providers are set to achieve remarkable gains this year, driven by a surge in demand for power from emerging technologies, particularly generative artificial intelligence (AI). Investors are increasingly hedging against volatility in commodity markets, betting on long-term growth fueled by the energy needs of power-intensive technologies.
The Alerian Midstream Energy Index, which tracks major North American pipeline and storage companies, has risen approximately 46% this year, reaching a record high in March. This performance significantly outpaces the nearly 25% gains seen in the broader S&P 500 index during the same timeframe.
Key players in the Alerian index, such as Kinder Morgan and Targa Resources, are on track for their best annual performances, while Williams Co is poised for its strongest year in nearly two decades. Kenny Zhu, a research analyst at Global X ETFs, noted substantial inflows from institutional investors over the past six months, highlighting the sector’s growing appeal.
The fixed-fee business model of energy infrastructure firms provides a buffer against fluctuations in oil and gas prices, while the sector benefits from surging domestic production. Additionally, stable cash flows have led to increased payouts through dividends and buybacks, attracting smaller investors.
The explosive growth of artificial intelligence has heightened demand from data centers, which require continuous, reliable energy to power their operations. Rob Thummel, a senior portfolio manager at Tortoise, emphasized the critical link between AI and energy infrastructure, stating, “There’s no artificial intelligence without energy infrastructure, because AI needs the power 24 hours a day, seven days a week.”
Looking ahead, several liquefied natural gas (LNG) export projects are anticipated to come online in the latter half of the decade, further increasing the demand for pipeline infrastructure. However, the construction of new large-scale pipelines in the U.S. faces significant regulatory challenges, making existing infrastructure even more valuable.
Zack Van Everen, director of research at TPH&Co, remarked, “If you have pipelines in the ground right now, you’re in a really good spot because those are going to become more and more valuable as demand continues to grow.”