Natural Gas Is a Smart Choice in AI Trade
Data center buildouts should power up natural gas demand.
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The AI narrative that has driven the majority of market gains for the past three years continues to encounter increasing turbulence. More questions are finally being asked around the vendor financing circle that has been so integral for the surge of tech spending and positive backdrop behind the AI Revolution. These have been minor hiccups to this point. But I expect this scrutiny will increase in 2026 along with other challenges.
Among the obstacles for AI is whether electricity generation capacity can be brought online fast enough to meet the fast-growing needs of the hyperscalers. Stock buybacks should also ebb greatly as additional cash flow is devoted to this AI infrastructure buildout by the tech giants. And these expenditures will increasingly hit margins, earnings growth and free cash flow in the year ahead.
How all this plays out In 2026 is a vast unknown or at least should be for any prudent investor. One clear winner, however, in this endeavor over the long-term seems apparent. And that is natural gas. Despite hundreds of billions of dollars of taxpayer dollars spent on renewables, neither wind nor solar can deliver the consistent and reliable energy generation needed by massive data centers. New nuclear capacity takes forever to bring online, although modular reactors are considered to reduce that time significantly. New coal plant generation is a non-starter from an environmental perspective, at least in the West.
That leaves new electrical generation capacity largely to natural gas, whose reserves fortunately are abundant in the country. Natural gas is also benefiting from sanctions on Russia, because of the conflict in Ukraine. This has contributed to a surge of liquefied natural gas exports, and the U.S. is now the largest LNG exporter on the planet, about a third larger than its next largest competitor.
This has triggered a massive natural gas pipeline buildout across states like Texas, Louisiana, and Oklahoma. This has contributed to the largest expansion of Gulf Coast natural-gas capacity since the heyday of the shale boom, back in 2008. Nearly a dozen of these projects should come online in 2026 and will add the equivalent capacity of what Canada consumers annually. These new natural gas pipelines will also greatly aid the E&P concerns in the Permian Basin, who badly need relief as current pipeline capacity is maxed out.
Massive new LNG terminals are also scheduled to start to be operational in 2027. This has been aided by Texas and Louisiana regulators, which have greatly sped up the approval process for this new capacity.
There are few key economic engines humming outside the AI buildout in the United States currently. But this under the radar development in the energy patch is one of them. In Friday’s column, I will circle back on this topic and highlight several companies that should benefit from the surge of spending in this space.
At the time of publication, Jensen had no position in any security mentioned.
