We recently published a list of 9 Best AI Energy Infrastructure Stocks to Buy Now. Since Diamondback Energy Inc (NASDAQ:FANG) ranks 4th 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: 44
Diamondback Energy Inc (NASDAQ:FANG) is one of the top energy stocks in Tortoise Capital Advisors portfolio.
Diamondback is an oil and gas company and while it is not directly exposed to data centers or AI, a broader shift and demand in the market amid the AI revolution will certainly impact the stock positively. Diamondback Energy Inc (NASDAQ:FANG) is also seeing changes amid electrification in the oil and gas industry. About 95% of its field is on the grid, versus 60% a few years ago, while half of its oil well completion operations and roughly 75% of its drilling equipment are running on grid power.
Diamondback Energy Inc (NASDAQ:FANG) is a high-yield dividend stock, with over 4.5% yield as of July 14.
Diamondback’s strategy is built on four key components: maintaining low-cost production to outcompete rivals, selectively pursuing M&A to expand its footprint and achieve economies of scale, returning significant free cash flow to shareholders, and adopting a flexible approach focused on growth. As a smaller, independent U.S. energy company, Diamondback Energy Inc (NASDAQ:FANG) is rapidly expanding and leveraging its strengths, particularly its prime acreage in the Permian Basin. Diamondback Energy Inc (NASDAQ:FANG) has 10% of its operations in the Delaware Basin in the western Permian, while 90% of its current operations are within the Midland Basin to the east.
ClearBridge Select Strategy stated the following regarding Diamondback Energy, Inc. (NASDAQ:FANG) in its first quarter 2024 investor letter:
Our final addition was Diamondback Energy, Inc. (NASDAQ:FANG), a leading oil and gas producer that agreed to acquire fellow exploration and production company Endeavor Energy Resources in the quarter. The deal should allow Diamondback to capture operating synergies and streamline costs by reducing rig redundancies and optimizing production techniques. Endeavor has previously prioritized double-digit production growth over capital discipline, leading to the quick depletion of its core inventory in the oil-rich Midland Basin. Diamondback’s focus on free cash flow generation should allow the combined entity, which we consider an evolving opportunity, to rein back its production levels and extend the longevity of this high-quality acreage to fund cash returns. Diamondback replaces the energy exposure the portfolio will lose with the pending acquisition of top 15 holding Pioneer Natural Resources by Exxon Mobil.
Overall, Diamondback Energy Inc (NASDAQ:FANG) ranks 4th on Insider Monkey’s list titled 9 Best AI Energy Infrastructure Stocks to Buy Now. While we acknowledge the potential of Diamondback Energy Inc (NASDAQ:FANG), 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 FANG 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.
