Outperform S&P and surpass Nvidia? This industry is becoming Wall Street's new favorite

Futu News ·  Apr 8 19:50

As crude oil prices continue to rise, energy stocks seem to have become a brighter “rising star” than technology stocks in the US stock market.

S&P 500 Energy Select Sector SPDR Fund$Energy Select Sector SPDR Fund (XLE.US)$It hit a record high last week, with a cumulative increase of nearly 18% during the year, surpassing the overall S&P 500 index's increase of about 9%.

Specifically, energy stocks have performed very well this year. Among them,$Marathon Petroleum (MPC.US)$,$Valero Energy (VLO.US)$,$Phillips 66 (PSX.US)$,$Canadian Natural Resources (CNQ.US)$,$Pioneer Natural Resources (PXD.US)$,$Exxon Mobil (XOM.US)$,$ConocoPhillips (COP.US)$They all hit record highs last Friday, with gains in the 16%-48% range during the year; Buffett loves stocks$Occidental Petroleum (OXY.US)$This year, it has also accumulated a cumulative increase of over 16%.

What is the secret to the energy stock explosion?

The market generally believes that there are two major logics behind the recent popularity of energy stocks in the capital market: first, oil demand is strong due to stronger global economic performance than expected; second, supply chain blockages caused by geopolitical crises such as the Russian-Ukrainian conflict and the Middle East conflict.

Shamik Dhar, an economist at BNY Mellon Investment Management, pointed out that the capital market has always favored relatively simple investment logic. Compared with the factors driving the continued rise in the valuations of large US technology stocks, the logic of buying up energy stocks appears simple, clear, and more certain.

Wall Street hedge fund managers pointed out that more importantly, recently crude oil prices have continued to soar and hit new highs during the year, causing Wall Street investment institutions to see that the profit effect of increasing energy stocks continues to expand, accelerating the flow of capital from large technology stocks to energy stocks. This has also spawned another simple US stock investment logic — buying energy stocks as an “alternative” to betting on rising commodity prices such as crude oil and falling inflation.

Nicholas Colas, co-founder of DataTrek Research, said that oil prices have stabilized, which is a necessary prerequisite for the industry's excellent performance. Moreover, if there is an oil market shock caused by geopolitical tension this year, the sector will be able to act as a unique risk hedging tool.

At the same time, the industry also anticipates a further surge in global energy demand in the next few years as large amounts of electricity are needed to meet the development of artificial intelligence. Big tech companies are “obsessed” with finding enough energy to power the boom in artificial intelligence, which became an important topic at the CERA Week event hosted by S&P Global last month.

Energy market analyst Phil Flynn emphasized that the AI revolution is expected to bring profound changes to the US oil and gas industry, as the development of AI technology can not only improve the efficiency of finding oil, but also help produce oil in a cleaner way.

Thanks to artificial intelligence, mapping oil fields will no longer require heavy guesswork and trial and error, and we will be able to accurately determine the target areas for drilling, so we can obtain the most abundant oil resources with minimal carbon emissions in these places. This transformation will not only improve the economic efficiency of the industry, but will also have a positive impact on environmental protection.

The next AI deal — energy?

Bank of America Merrill Lynch said in a newly released research report that with the rapid development of AI technology, electricity demand from the US grid will face unprecedented growth. It is expected that from 2023 to 2030, US electricity demand will grow at a compound annual growth rate (CAGR) of 2.8%.

Bank of America Merrill Lynch believes that this growth is mainly driven by four major factors, including the expansion of AI data centers, industrial growth, the adoption of electric vehicles, and the electrification of buildings. Among them, data center power demand is particularly prominent.

Goldman Sachs analyst Louis Miller pointed out in the latest research report that as AI infrastructure construction progresses, the power infrastructure and energy sector will become a major trading topic:

The focus of the entire artificial intelligence stack has moved from software and AI tools to hardware. Among them, the “winner-take-all” state is likely to decrease, and many existing companies in the market have the potential to increase profits through AI. As a result, we expect the hardware and power-oriented industry to catch up with the broader topic of artificial intelligence.

Coincidentally, investment bank Evercore ISI also said that AI data centers will require large amounts of electricity, which may be a good sign for utility stocks.

In fact, according to the “New Yorker” magazine, ChatGPT, a subsidiary of OpenAI, may consume more than 500,000 kilowatt-hours of electricity every day to respond to about 200 million requests from users. In contrast, the average American household uses about 29 kilowatt-hours of electricity per day, which means that ChatGPT uses more than 17,000 times more electricity per day than a household.

According to the Boston Consulting Group report, data center electricity consumption accounted for 2.5% of the total electricity consumption in the US (about 130 terawatt-hours) in 2022, and is expected to triple to 7.5% (about 390 terawatt-hours) by 2030. This is equivalent to the electricity consumption of about 40 million American households, or the electricity consumption of one-third of all American households.

This indicates that a new peak in electricity demand is approaching, and how to meet this demand will undoubtedly be a major test for power companies.

In fact, Wall Street, which has a sensitive sense of smell, has long been aware of this potential opportunity and has begun to lay out these companies that sell US power plants.

Previous articles“Missed the Nvidia train? Wall Street Guiding the Way: This sector is expected to be boosted by AI”As it was written, Morgan Stanley anticipates that the global demand for electricity from generative AI may double. The bank believes that the prospects for the power stock sector may be better, and it has raised the target prices of various power companies.

And judging from the recent performance of electricity stocks, America's leading power supplier —$Vistra Energy (VST.US)$, America's largest carbon-free nuclear power giant —$Constellation Energy (CEG.US)$, the largest green power company in the United States$NRG Energy (NRG.US)$The performance was very strong, with increases of over 96%, 65%, and 41% respectively during the year.

Among them, Vistra Energy is a powerful energy giant with a production capacity of up to 41 gigawatts (GW), which is enough to ensure that the electricity needs of 20 million households are met, which fully proves Vistra Energy's superior position in the field of electricity supply.

Evercore also said that Vistra is one of the largest competitive power generation companies in the US. It has 5.4 gigawatts of nuclear power generation, making it the second-largest unregulated nuclear energy producer in the US.

Nuclear power generation, with its efficient and environmentally friendly characteristics, provides strong support for Vistra Energy's power supply, further consolidating its competitive advantage in the energy market.

Evercore is confident about the power company's prospects, so it raised its target share price from $72 to $79. The bank believes that although Vistra Energy's main strength comes from sales of natural gas and retail electricity, its nuclear power generation capacity makes it a key player in data center power supply. This review has undoubtedly injected more confidence and anticipation into Vistra Energy's future development.

Constellation Energy is the largest carbon-free nuclear power giant in the US. It mainly uses clean energy such as nuclear energy, wind energy, solar energy, and hydropower to generate electricity. Analysts predict,

If Constellation Energy can successfully deploy its nuclear power capabilities to meet the needs of artificial intelligence data centers, earnings per share for the full year 2026 could rise 50%.

In addition, NRG Energy, the largest green power company in the US, also has a strong power generation capacity, reaching 13 gigawatts, and serves a huge customer base, with a total number of 7.6 million customers. This solid foundation provides a strong guarantee for its continued growth in the future.

Bank of America Merrill Lynch also said that as demand for electricity in the US increases, data center and grid operators need to find more effective power and thermal management solutions to support this growth.


Cow friends,

If “the end of AI is really electricity,”

Can US energy stocks still have more room to rise?

Welcome to leave your thoughts in the comments area~


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