Is Nat Gas An AI Play?

The AI companies are suddenly high-risk investments. See Anthropic lost $80 billion in the first half of this year, and What happens if the AI bubble bursts?

Does that mean we should avoid the sector altogether? Or are there other companies that thrive along with AI, without the massive uncertainty of the AI companies themselves?

According to energy analyst Doomberg, whichever AI companies survive the current financial storm will need massive amounts of energy. And the natural gas companies will be there to provide it. Here’s a video that fleshes out this thesis, followed by a partial transcript:

Partial Transcript

Doomberg: The reason why natural gas is dirt cheap in the US is because oil is expensive. Oil and natural gas are largely co-produced together from the same well across the big shale patches in the US. So when the price of oil spikes, all those shale patch drillers start drilling huge volumes because they want that expensive crude. And they’ll give away the natural gas to get that crude.

We wrote a piece on this called “generational arbitrage” a couple of years ago. One of the ways this arbitrage is going to close is a boom in [gas-powered] data center construction in the US.

Host: Fascinating dynamics there, and I think that actually dovetails nicely with something that you said in 2024, where you described data centers as buildings where natural gas goes in one side and data comes out the other, and you predicted that sitting right on top of natural gas fields would be an inevitable choice for where to build data centers. Two years later, we’re seeing Chevron (CVX) and Microsoft (MSFT) planning a 2.7 gigawatt project in the Permian. And SoftBank has a 9 gigawatt gas build-out in Ohio.

So, just an open question to you. If you could add one energy sector to an AI investor’s portfolio today, what would it be?

Doomberg: We just did a deep dive for our premium tier on midstream companies that build pipelines, get paid largely by volume, not by the price of the underlying commodity. So if pipelines are constraining to connect gas fields to data centers, they build them and they collect a “vig” for every molecule that passes through their pipeline. They’re wonderful companies, very well-run. They have a little bit of leverage. Fortress balance sheets. These are capital compounders, classic steady 8, 10, 12% per year dividend payers.

Our deep dive found 10 interesting companies to look at.

Nat Gas Recommendations Coming

Our Portfolio holds only one pipeline stock. But I’ll add a couple more pretty soon. In the meantime, suggestions would be welcome.