Tech giants have increasingly set their long-term sights on nuclear power to fuel their artificial intelligence ambitions. Getting there will require more natural gas along the way — an incentive to stay invested in driller Coterra Energy . Meta Platforms , a fellow Club holding, reinforced that fact this week with the announcement of a massive, $10 billion data center facility in northeast Louisiana. To support the project, utility Entergy said it plans to build three power plants that use combined-cycle combustion turbines — a type of electricity generation system that, typically, utilizes a mix of natural gas and steam. Meta plans to continue the construction of its Louisiana project through 2030. “I continue to like Coterra very much,” Jim Cramer said in reaction to Meta’s announcement. The rise of generative AI has dramatically increased expectations for U.S. power consumption in the coming years because the technology is underpinned by an energy-intensive computing process, requiring more data centers where that computing takes place. In recent months, many of the major U.S. tech companies including Club holdings Amazon and Microsoft have announced splashy endeavors on nuclear power to help meet their AI-related energy needs — most notable is a plan to restart Three Mile Island in Pennsylvania to serve Microsoft’s data centers. Nuclear has seemingly supplanted solar as tech’s go-to-source of clean energy, admittedly a dent to our thesis in Nextracker . But in general, these nuclear projects will take years before there’s a payoff, and the increased power consumption is happening now. That is good news for natural gas, already the most common source of electricity generation in the U.S. Higher demand should, barring a deluge of excessive supply, lead to favorable prices of the commodity, benefitting companies like Coterra that produce it. “The important thing to know about Coterra is that there’s going to be a huge wave of companies that have to buy natural gas, or tie into the natural gas system, because of the influx of data centers,” Jim said. “Data centers are giant burners of electricity, and only the natural gas systems — there’s not enough nukes out there — can really make it so there’s going to be stable ground.” Meta’s recent actions perfectly illustrate this dynamic. In addition to the three gas-reliant turbines that Entergy plans to install to support the Louisiana facility, both companies “have also committed to exploring nuclear energy as a future power supply option alongside renewable sources like solar and wind,” the utility said in a press release. Indeed, the Facebook and Instagram parent on Tuesday released a request for proposals from nuclear energy developers. Meta said its goal is to add between 1 to 4 gigawatts of nuclear power in the U.S. beginning in the early 2030s. For context, 1 gigawatt of power is equal to 100 million LED light bulbs, according to the Department of Energy . Houston-based Coterra, the lone energy stock in the Club’s portfolio, produces both oil and natural gas. The company has recently emphasized that its mix of production shifts based on which commodity has more profitable prices. Natural gas had a steep drop to start the year before bottoming in late April. The summer and fall have also been volatile — but in the past month, natural gas is up a little over 12% and traded just over $3 per million British thermal units on Friday. In the short run, weather forecasts are often a major driver of natural gas prices since it’s used to heat homes and businesses, among other things. That can create some wild swings that take the stocks of Coterra and its peers along for the ride. But there are longer-term factors that should lead to higher natural gas demand over time – and growing power usage thanks to AI computing is one of them. “The nuclear solutions are well down the road,” Coterra CEO Tom Jorden told Jim last month . “There’s just not a serious study that comes out [discussing] the increased electricity demand that doesn’t say natural gas has to be the lion’s share. The marketplace will come around to that. It’s already starting to. … It’s the only answer for the bulk of it.” Another multiyear driver of demand for the commodity is liquified natural gas, or LNG, which Coterra and other players see accelerating as new export terminals in the U.S. come online. That will allow for more natural gas produced in the U.S. to be shipped around the world, particularly into Europe. Plus, the incoming Trump administration is expected to be more supportive of growing LNG export capacity than the current Biden administration, which earlier this year implemented a pause on new permits. For its part, Coterra recently inked a few LNG supply agreements. Bottom line The combination of AI data centers and LNG exports is a strong backdrop for Coterra’s business, and the stock also serves as a geopolitical hedge in the portfolio — if any instability causes commodity prices to spike, akin to what happened in 2022 when Russia invaded Ukraine, shares of oil-and-gas producers stand to gain. Its dividend yield just over 3% pays investors for their patience, too. Coterra’s stock, down about 2% year to date, has hardly been an exceptional performer. However, the reasons to stay invested as part of a diversified portfolio are compelling and increasingly harder to ignore. Facebook and Instagram now join the pile. (Jim Cramer’s Charitable Trust is long META, CTRA, AMZN, MSFT. 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A Facebook data center in Prineville, Oregon.
Meg Roussos | Bloomberg | Getty Images
Tech giants have increasingly set their long-term sights on nuclear power to fuel their artificial intelligence ambitions.
Getting there will require more natural gas along the way — an incentive to stay invested in driller Coterra Energy.