We recently published a list of 9 Best AI Energy Infrastructure Stocks to Buy Now. Since Chevron Corp (NYSE:CVX) ranks 3rd on the list, it deserves a deeper look.
Rob Thummel, senior portfolio manager at Tortoise Capital Advisors, while talking to CNBC in a latest program, said that he sees a big opportunity for AI in the energy industry. Thummel said that while everybody keeps talking about technology infrastructure when it comes to AI, they “forget” about energy infrastructure.
Thummel said that AI will create electricity demand that will in turn fuel the need for natural gas.
“There is no AI without EI (energy infrastructure) because you need this critical infrastructure to provide the fuel to keep their lights on and electricity flowing 24 hours a day.”
Talking about energy stocks, Thummel said a lot of them are “pretty simple stories” as they generate a lot of cash flows and return a significant portion of it back to shareholders.
Asked about the cyclical nature of the industry, Thummel said that global energy demand is currently at its peak and has grown for 38 years over the last four decades. The analyst said the demand for energy increases every year across the world. Thummel said the US has become the largest energy exporter and he does not see that changing for a long time.
Thummel also shared some of his top picks in the energy sector. For this article we scanned his portfolio and chose his top AI energy infrastructure picks. With each stock we have mentioned the total number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Number of Hedge Fund Investors: 62
Chevron Corp (NYSE:CVX) is one of the top energy stocks in Tortoise Capital Advisors portfolio.
Chevron stands to benefit from an expected surge in natural gas demand amid the rise of data centers.
Talking to CNBC in May, Chevron Corp (NYSE:CVX) CEO Mike Wirth said that natural gas demand was expected to surpass expectations as electricity consumption surges from artificial intelligence and data centers.
“It’s a little hard to quantify right now because this is evolving so quickly on the AI side. But I think demand for natural gas is likely to be higher than what people have been estimating up until now.”
With 37 years of consistent dividend increases, oil giant Chevron Corporation (NYSE:CVX) is one of the best dividend growth stocks to buy according to hedge funds. Chevron Corporation (NYSE:CVX) has been paying dividends without a break since 1984. Its annual dividend growth rate over the past three years is 5.40%. Chevron Corporation (NYSE:CVX)’s payout ratio is about 56%, which is higher than the industry mean of 45%, but given the company’s huge cash flows and strong fundamentals, dividend safety isn’t a major concern for Chevron Corporation (NYSE:CVX) investors.
Chevron Corp’s (NYSE:CVX) management has pledged fiscal discipline and caution amid massive swings in oil and commodity prices. Analysts believe Chevron Corp (NYSE:CVX) remains well-positioned in the Permian Basin and DJ Basin, with strong production numbers posted in the first quarter. In April, Chevron Corp’s (NYSE:CVX) management said it expects $80/BBL Brent in 2024 and guided for a 4% to 7% increase in total production in the year. Analysts believe this guidance was conservative as continued supply cuts from oil producers would support oil prices.
Analysts also believe now that Hess shareholders have approved Chevron Corp’s (NYSE:CVX) $53 billion acquisition of the company, the deal could go through and help Chevron expand and achieve its goals in Guyana.
Chevron Corp (NYSE:CVX) is expected to see earnings growth of 10.57% in 2025, much higher than Exxon’s 6.72% earnings growth. Given all these growth catalysts, strong fiscal position and dividends, the stock is undervalued, at a forward P/E ratio of 13.89.
Carillon Eagle Growth & Income Fund stated the following regarding Chevron Corporation (NYSE:CVX) in its fourth quarter 2023 investor letter:
“Chevron Corporation (NYSE:CVX) traded lower, along with oil prices, and issued a disappointing earnings announcement due to overseas refining losses. Separately, the company announced an agreement to buy another energy company with operations offshore of Guyana, as well as in North Dakota, the Gulf of Mexico, and the Gulf of Thailand. This is a strategic acquisition for very little takeout premium.”
Overall, Chevron Corp (NYSE:CVX) ranks 3rd on Insider Monkey’s list titled 9 Best AI Energy Infrastructure Stocks to Buy Now. While we acknowledge the potential of Chevron Corp (NYSE:CVX), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CVX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
