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Wells Fargo suggests that these dividend payers may actually benefit from the hype surrounding AI.



The utilities sector, traditionally known for its stable dividends, is gaining traction due to the increasing hype around artificial intelligence (AI) and data centers. According to Wells Fargo, the S & P 500 utilities sector saw a 3.6% gain in the first quarter of 2024, followed by an 8% surge in the second quarter driven by excitement around AI and data centers. The growth of AI data centers is projected to drive a significant increase in electricity demand in the U.S. by 2030, creating opportunities for natural gas companies to capitalize on this trend.

Tech companies are increasingly looking for power sources that can complement their use of renewable energy, leading to a rise in demand for natural gas. Kinder Morgan CEO Kimberly Dang highlighted the anticipated growth in gas demand, especially from power associated with AI and data centers. Several utility companies have identified AI data centers as a lucrative opportunity, with some companies expected to benefit more than others.

One such company is The Williams Cos., which is expanding its capacity to meet the rising demand for natural gas, particularly for AI data centers. The company is rated a hold by analysts and has seen a 14% increase in its stock price in 2024, offering a dividend yield of 4.8%. TC Energy is another company highlighted by Wells Fargo as a beneficiary from the data center trend, offering a dividend yield of 7.3%. The company is rated a hold by analysts but is recommended as a buy by Wells Fargo.

On the other hand, Oneok is also expected to see a boost from the growing AI trend, with the company working on supplying gas to various AI-related gas plant expansions. The company has seen a 15% increase in its stock price in 2024 and offers a dividend yield of 4.9%. Wells Fargo rates the company a buy, with just over half of analysts covering the name also giving it a buy rating.

Overall, the utilities sector is undergoing a transformation as AI and data centers drive increased demand for natural gas. Companies like The Williams Cos., TC Energy, and Oneok are well-positioned to capitalize on this trend and see growth in their stock prices and dividend yields. Investors looking for opportunities in the utilities sector may want to consider these companies as potential investments in the AI and data center space.

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