3 Energy Stocks Set to Double From the AI Data Center Boom

Hey everyone, and welcome back to the channel. I'm Rachel. Joining me today is my co-host Neil. And today we're going to be talking about a major shift that's hitting the market right now. And that's essentially the energy bottleneck behind the AI data center boom. And you know, Wall Street has spent the last couple of years focusing on the software, the chips, but the physical reality is starting to set in. You know, you can buy all the advanced graphic cards you want, but if you don't have the actual energy, the electricity to run them, those data centers are completely useless. And the sheer amount of power that these systems need has become a serious issue. So, recent projections show that a single AI search query, so just generative AI, can take up to 10 times the power of a regular Google search. And McKinsey has estimated the data center power demand in the US alone will rise from what it was in 2022 of about 17 gigawatts up to around 35 gigawatts by the year 2030. So, we're dealing with an electrical grid that has seen real, you know, no real power demand growth for decades. And now it suddenly has to add the equivalent of several major cities worth of capacity in just a few years to keep up with all of this computing. And to make things worse, there's a tough timeline problem. So, traditionally utility companies, they take anywhere from three to seven years just to get a transmission line approved because of all the regulatory hurdles, the environmental reviews. And for your tech company, you're moving on a timeline sometimes it's measured in months. I mean, think about this, if a cloud operator has to wait years for power to use their edge. Essentially, this is why we're seeing this huge new market open up for alternative off-grid energy infrastructure companies that can deploy power fast. Tech giants aren't looking at electricity as a boring utility bill anymore. It's a core asset that dictates who wins the AI race. And the businesses that can step in and provide that power, they're bypassing the public utilities completely. That makes them highly valuable both for the data center companies, but also for us as long-term investors. And that's why we're watching this trend so closely. Um when you look at the total pipeline of data facilities waiting to get online, the main thing holding them back is local power constraints. So, today in this video, we're going to be breaking down three energy stocks that are generating real growth, real cash flows, and real profits by fixing this exact power bottleneck. >> Now, before we continue with today's episode, if you want market-beating stock picks from our analysts, make sure to check out the pinned comment and the description. Using that link gets you a promotional offer as our thanks for being a viewer. Thank you, and let's get back to today's episode. >> Neil, you're up first. >> All right. So, my first pick is a company that's extremely popular with investors, and that's uh Bloom Energy, ticker symbol uh BE. Now, Bloom Energy is a company worth quite a lot of money today. It's worth 64, close to 65 billion dollars. It has performed extremely well. It's up 121% year-to-date and up 300% over the past 12 months. Now, this is a company that, revenue-wise, that's also growing extremely rapidly. It is an American public company that designs and manufactures solid oxide fuel cells. Very very uh chemistry-oriented uh terms will pop up in this video, but to keep it simple, to keep it simple, data centers, like Rachel said, they need energy. They need to pop up basically super quickly. Traditionally, that would have taken a long, long time. So, they're looking at other alternatives. This is where Bloom Energy comes in. They do offer various services. They offer energy servers, electrolyzers, and service contracts. Now, the majority of their revenue, it's actually 90% of last quarter's revenue, was product revenue. So, solid oxide fuel cells, the energy servers, and electrolyzers deployed to power AI uh data centers, the hyperscalers, and commercial customers. The other part, which is just 10% of Q2 revenue, was just the uh service revenue. Now, the product revenue that has actually increased triple digits 215% year-over-year and 43% sequentially to $935 million with product gross margin reaching 37.2% Total revenue last quarter was up 166% year-over-year to just over a billion dollars, which was their first ever quarter of above a billion dollars in revenue generated. Now, for the full year, they did raise a guidance there as well to reach between 3.9 to 4.2 billion dollars. This is growth of approximately 100% year-over-year at the midpoint, supported by an overall backlog that is growing faster than revenue. Now, the thing here with Bloom Energy, and just like with every other company that is benefiting from this build-out and this AI cycle, is the numbers look excellent right now. Margins are up, gross operating margin, revenue is growing triple digits. All of that is great. But, I do believe that the market or investors should still look at, okay, what happens 2 years down the line, 3 years down the line? Can they sustain this margin profile? Because this has never happened before for this company and for many other companies out there as well. We've talked a lot about memory players. Memory is quite a cyclical business, but right now it seems like the cycle will just last for longer and will go much, much higher. So, the tricky part here is knowing that this is an excellent business today, crucial for this build-out, especially as companies, hyperscalers, neo clouds want to build more data centers faster, more efficient, and cleaner. Emphasis on the clean side of things. So, all of that is great. They have the momentum, Bloom Energy, and various others. But, how long can they sustain the growth, and how long can we see margin expansion? And at some point, maybe margins will peak, and then we'll have to figure out how low will this go. >> I I'm really glad you brought Bloom Energy. This is an interesting business, and I think it it really highlights the way in which a lot of these tech companies are bypassing the traditional utilities, but there's also the risks that you mentioned, of course. Is this more of a pull forward in growth uh that could have a an element of cyclicality baked into it? I mean, the the reality that we're looking at right now, as we talked about, is hyperscalers, they don't have years to wait for a regulated regional utility to approve a grid hookup. And so, by deploying these solid oxide fuel cells, Bloom essentially builds an independent off-grid power ecosystem right on site for these clients, and it kind of shifts their positioning from what had historically been more of just a hydrogen player into one of these key infrastructure players for the AI data center expansion. And, you know, they have some really impressive uh agreements that they have made as part of this trend. You know, there's a a $25 billion financing framework expansion with with uh Brookfield Asset Management. They have a master services agreement to deploy up to 2.8 gigawatts of capacity with Oracle. Uh you know, American Electric Power, I think, signed a 2.7 billion dollar 20-year agreement for gigawatt of fuel cells. So, it basically indicates that a lot of these traditional operators are utilizing third-party on-site generation to meet these heavy uh industrial loads. >> Yeah, and if I I just look at what the market expects this company to do revenue-wise for fiscal '26, it's 103% year-over-year growth. So, market is quite bullish that they can exceed the midpoint target. But, the growth is still excellent in fiscal '27. It it's at 65% and then 45.8% in fiscal 28 to generate approximately 9.8 billion dollars in revenue. So, the market still expect this company to grow quite quickly over the next couple of years. Free cash flow is the same story there. Actually, free cash flow and operating profit is expected to grow faster than revenue. So, that's great, right? We're talking about margin expansion here. But, what about 2030, 2031, 2032? Is energy still going to be a bottleneck? Are more players going to pop up? Remains to be seen. Right now, it seems like Bloom Energy is sitting on, I would say, sort of a a gold mine and is positioning itself as a super crucial player in this buildout. >> Well, that I'm going to move into my first pick for today's video. I want to talk about a company called Constellation Energy. That's ticker CEG. This is an interesting company amidst the nuclear energy revival. So, just to talk a little bit about the business model here. Constellation Energy operates a large fleet of nuclear reactors and they sell that electricity under long-term contracts. And so, instead of selling, you know, standard power for small fluctuating prices, they generate very consistent revenue by essentially selling fixed blocks of power directly to corporate giants. So, Constellation Energy is actually the largest producer of carbon-free nuclear energy in the country. That is actually a really interesting element there because we still know that a lot of the big tech companies, of course, have very strict sustainability mandates and they need uninterrupted power. Nuclear power is the only source on Earth that can give them that base load 24/7. So, this has been a fascinating company to watch. You know, they have enacted a 20-year agreement to revive unit one of the Three Mile Island nuclear plant in Pennsylvania, which essentially completely changed, uh you know, the playbook for nuclear economics. They're spending over a billion of their own cash to restore and upgrade this uh for a long time now shuttered nuclear reactor, uh which has been renamed the Crane Clean Energy Center. And actually under this contract, Microsoft is going to be buying up the plant's 835 uh 835 MW power output for the next two decades just to keep its regional data centers running. So, essentially, this is uh moving Constellation into a new period of their growth story where they're operating much more like a premium technology vendor. And as I mentioned, they're locking in these long-term contracts with some of the biggest companies, including the tech giants on the planet who are desperate for power access. And there is a pricing power element that you see especially in a supply-constrained market. And we are continuing to see the hyperscalers will gladly pay a premium to avoid uh you know, catastrophic energy downtime. So, it's a it's a fascinating business. Um they have been delivering pretty impressive growth, particularly in recent quarters. Uh their recent quarter, they delivered a 23% year-over-year increase in revenue. They pulled in $7.5 billion for the quarter. Adjusted operating earnings uh rose to $920 million. That was compared to $599 million one year ago. They have an adjusted net margin of 7%. And uh management actually raised their full-year earnings outlook. So, I do think this is a fascinating company to look at if you're you know, examining as an investor the physical reality and bottlenecks of the AI race. I think this is one you know, to proceed with caution and to understand the business model there. Uh but I've been particularly impressed by some of these contracts that they've signed recently with the likes of Microsoft. Um and so, I think this is at least one to put on your investor watch list. >> Yeah, I was I was checking the growth rates. It's a by the way, it's a company worth almost a hundred billion dollars. It's generated 31 billion dollars over the last 12 months, but the stock is down 23.2% year-to-date. Has this more to do with regards to the long-term uranium sourcing structures or is it just because the stock went up too fast previously on maybe more let's say hype around nuclear type of names. >> [laughter] >> Yeah, I mean it's been a a few different factors. This is still a company you know, they have impressive growth figures they're reporting, but they are still dealing with a lot of corporate debt. And that's something that I think investors are concerned about. You know, they had purchased actually a natural gas and geothermal provider called Calpine for over 26 billion dollars that increased their debt, their net interest expenses. Um and a lot of these transactions obviously have regulatory hurdles involved. You know, there's there's regulatory compliance requirements they have to digest specific energy centers. Um so I just think that there's been some periods of pullback, some market hesitation there. I still find this to be a compelling business, but those are certainly factors I think to bear in mind if you're going to be looking at this stock. >> All right, fair enough. Fair enough. I I think there is a lot of demand for what they're doing. It's just about execution, handling the balance of can we grow faster while not blowing up our balance sheet. >> Yeah, absolutely. Uh with that I'm going to dive right into today's final stock. Um I'm going to talk about GE Vernova, ticker GEV. Uh this is a business that essentially revolves around building, installing, and maintaining heavy electrical hardware across the world. They generate upfront revenue by selling large components like uh gas turbines and grid transformers. And so they're able to lock in years of high margin recurring revenue and income by servicing that exact equipment. So once they install those turbines and grid transformers and there's those long-term service contracts that generate recurring revenue. If you're not familiar with the name GE Vernova, this is a company that was spun off from the classic General Electric company. And this was so that they could focus 100% on the global energy transition. And you know, why am I talking about this stock today? Well, if you step back, you look at the big picture, it doesn't really matter if a data center is powered by natural gas, nuclear, wind, or solar. All of those electrons have to pass through turbines, generators, heavy grid equipment. And so, GE Vernova is is one of those companies that builds and services and it modernizes uh that hardware. So, their business operates in three segments power wind and electrification. But, the electrification segment is really where that AI growth story is. So, as data centers are scaling up, we're seeing, you know, demand for the transformers, the switchgear, um the high-voltage grid software has really strained global supply chains. Lead times have stretched out multiple years in some regions. GE Vernova is sitting on a backlog of uh extensive orders because they are one of the only players in the world with the scale, the engineering prowess to deliver this heavy equipment. And one thing I'll note, you know, beyond those initial hardware sales, what I find appealing about the business is they have a very profitable services backlog. So, once a gas turbine or a major electrical substation gets installed, it requires decades, quite literally decades of of maintenance, parts, and software updates. And so, that's going back to that recurring revenue stream I was talking about. Um you know, I think the real growth story here to watch is uh GE Vernova's margin expansion. So, they're actively working on getting some of those legacy low-margin contracts off the books, focusing on replacing them with the premium AI infrastructure orders. Um and I think that that's something that is kind of injecting new life into the growth story. just to put some numbers to that. uh GE Vernova posted a 22% revenue growth in their recent earnings. That was $11 billion in a single quarter. Their organic orders rose 88% year-over-year. They saw a 68% growth surge in their electrification segment. Um and they also elevated both their guidance and free cash flow expectations. So, this is a resilient business and I think that no matter how the grid changes and I think it is sure to change in the years ahead. Essentially, you can't run these factories without GE Vernova's hardware. I think that makes it a compelling player to watch or even buy some shares of. >> Yeah, it's it's a company that's it's been in the news quite a lot, especially this year. It's up 36.6% year-to-date. It's at the market cap of $247 billion. a forward basis. It's a bit more expensive than what you would think. It's now sitting at 43.5%, but the PEG ratio is at 1.3, which is not that much. It is expected to still grow revenues over the next couple of years around Well, for this fiscal year, it's a bit higher than 20%. Then it comes down to around 15% for the upcoming two fiscal years. But what's interesting here is that operating profit, net income, that's expected to grow faster than revenue. They are sitting like you said, they are sitting on a massive $110 billion backlog across equipment and services. Of course, they will recognize that over the next 24 months. So, we'll see what happens with regards to execution. If they continue to execute, we should expect that to be seen over the next 24 months. There is also a software part of it, which is probably why we're seeing the bottom line, the profitability side of the business improve. Which if you can improve that, once you are seen as a hardware business, but suddenly you have a software component to it. Maybe the multiple, the premium multiple that's put on this name is more justified. So, we'll see. For now, seems like it's a company that has been executing, that is growing top and bottom lines with bottom line actually growing faster than revenue growth, which in this day and age, as such a company in this industry, is uh I wouldn't say unique, but you don't see that many companies do the exact same thing. >> Yeah, not so easy to find. Uh one final note I'll make as well, you know, one of the reasons that General Electric spun off this company into GE Vernova was precisely because it was entering this high-growth capital spending supercycle. And so, this has been um a really fascinating business to watch. And you know, just for their power generation and grid equipment, they have you know, well north of a hundred billion dollar backlog. As you noted, I mean, that's larger than that the annual GDP of many countries. So, it's it's a really, I think, fascinating time to be looking at these companies, to be investing in them as well. Uh that wraps up our deep dive into some of the energy companies that we are watching, that are fueling the AI revolution. Uh we'd like to hear from you in the comments, what stocks are on your watch list, which ones are you looking to buy right now, or you know, what stocks would you like for us to talk about in upcoming videos. And if you want to learn more exactly about how we're positioning our own money to ride the energy trend, uh drop a comment below, hit the like button, and subscribe for more market deep dives. And we'll see you next time.