Artificial intelligence is driving a sharp increase in demand for electricity and natural gas, putting energy infrastructure assets in focus as data centres expand across North America. Investors are increasingly looking to pipelines, power generation and midstream networks that can support AI-related growth.
BNN Bloomberg spoke with Matt Sallee, executive vice-president and head of investments at Tortoise Capital, about his top AI energy infrastructure ideas and where he sees durable demand emerging across pipelines, power generation and high-performance computing.
Read the full transcript below:
ANDREW: With a hot topic for Hot Picks today, it’s AI energy infrastructure. Our guest has Williams Companies as his top selection, saying it generates 400 megawatts of power for Meta’s data centres. We’re joined by Matt Sallee, executive vice-president and head of investments at Tortoise Capital. Thanks very much for coming on the show.Of course, we think of Williams as a pipeline giant, but they’ve gotten in on the AI power game?
MATT: These boring old pipeline companies are all of a sudden starting to provide power for companies like Meta. The key is getting electricity as soon as possible. It’s really a race for speed to market to power data centres.What’s interesting is they’re using the same generation they use to push natural gas through their pipelines. They can add data centres and bring power online in less than a year, and they’re earning fantastic returns — about five-times multiples — on fixed-price contracts with fixed rates and fixed volumes.The beauty of it is that this generation also fills their pipelines with gas, so it’s a double benefit. It keeps pipelines full while earning attractive returns on these projects.
ANDREW: It’s interesting — a yield of about 3.4 per cent on Williams. Another attraction here is Targa Resources. Tell us what they do and what’s caught your eye.
MATT: They’re one of the key players in the Permian Basin, which is one of the most prolific basins in the world. They have pipelines running from the Permian Basin all the way to the Gulf Coast, giving them access to water and export markets.They’re essentially a start-to-finish solution for producers. Exxon recently said it expects to produce about 2.5 million barrels per day by 2030, up significantly from today, and Exxon is Targa’s largest customer. That’s pretty exciting and largely locks in their growth prospects.
ANDREW: It’s amazing, isn’t it, how the hydrocarbon industry has become fuelled by AI enthusiasm?
MATT: It really is, especially when you think about the amount of natural gas that’s going to be needed to produce the power.Over the past 20 years in the United States, electricity demand hasn’t really grown. Looking ahead, demand is expected to grow three to four per cent per year. That may not sound dramatic, but for electricity, that’s a big deal.Nuclear will help, but it’s really a function of natural gas. The number of natural gas turbines being built is phenomenal. Companies like GE Vernova are essentially sold out for the next five years. The amount of natural gas required to meet AI-driven power demand is frankly stunning.
ANDREW: And finally, Cipher Mining — CIFR. What do they do, and what’s the upside?
MATT: Most people haven’t heard of Cipher Mining. They’re a bitcoin miner. They secured power years ago to produce bitcoin, but now they’re transitioning their business model. Again, it’s all about speed to market for electricity.They’re converting that power into long-term contracts for high-performance computing. They’re locking up contracts with hyperscalers, which we think could allow the company to completely re-rate.The growth opportunity is massive. The stock has been volatile and has still done decently this year, but we see very bright prospects.
ANDREW: Why has it come off its high? Some AI-related stocks are down, and Meta is off its record high as well.
MATT: It’s largely concerns about an AI bubble. We don’t think that’s the case, although there are pockets that look a little inflated.Pretty much anything related to AI or AI infrastructure has pulled back from its highs. They’ve still performed well this year, but the long-term growth prospects remain very strong.
ANDREW: You don’t think something like OpenAI, with its debt load and spending commitments, could become a catalyst that deflates the broader AI story if it runs into trouble?
MATT: Our concern there isn’t necessarily fundamental — it’s more about sentiment. We’ve seen credit default swap spreads widen for certain companies, which is something we’re watching. It could create air pockets in the market, but it’s more of a sentiment issue than a core thesis issue.
ANDREW: Matt Sallee, executive vice-president and head of investments at Tortoise Capital.
—
