An AI trade involving energy and infrastructure that’s doubled your money, topping Nvidia

(This is CNBC’s “Power Insider” newsletter, your insider look at the investments, people and companies powering the global energy industry. Click Here to subscribe.)

Oil prices have come off their peaks this week, and media reports include Trump’s comments that Iran negotiations are in the “final stages.” But that’s not the real reason. The real catalyst is when ships start passing through the Strait of Hormuz. Crude oil prices started to retreat as hedge funds stepped in I started to see Even before the Trump headlines emerged, this traffic increased.

Of course, oil prices rose Thursday morning on more negative “headlines.” Keep watching the Bosphorus traffic as your guide.

Luckily that’s not my focus today.

There’s a lot more going on in the energy sector beyond Iran, and investors can’t afford to be inundated with conflict-related headlines and miss out on other big money-making themes emerging.

In last week’s Power Insider, I talked about the sheer size of AI’s electricity demand. (I will have another interesting trade idea regarding this low in today’s issue.)

A few days later, I was on a plane to visit two major liquefied natural gas (LNG) facilities in states near the forefront of the power story: Louisiana and Texas. About 48 hours later, NextEra Energy (NEE) signed a blockbuster deal to acquire Virginia’s Dominion Energy (D) and create America’s largest utility.

Let’s start with the Dominion Agreement.

NextEra shocked the energy world by announcing its mega-merger with Dominion. The stock deal is valued at about $67 billion, but the combined enterprise value of the new company will be about $420 billion. if The deal was approved. That’s a pretty good ‘if’, because some on Wall Street aren’t convinced this deal will be approved by regulators. The Jefferies team notes that NextEra “does not have a very good approval track record” and that they think the deal “could be rejected.” But Jefferies also notes that Dominion is unpopular in his home state of Virginia and is probably happy to have a potential buyer in NextEra.

Another energy expert I spoke with called the sale “astonishing” and added that getting it through multiple state approvals would be a complicated process. He understands NextEra’s side; The Florida company likely wants to grow its regulated service base and could use recent big stock gains to help offset the cost. But on the Dominion side, one insider calls it “confusing” and notes that the situation could come down to a board frustrated with Virginia’s policies and possibly enticed by the promise of a big payout to its executives.

Don’t underestimate the scale of regulatory approval, says Evercore ISI. Analyst Nick Amicucci highlights that this potential merger would require approval from a combination of the Federal Energy Regulatory Commission (FERC), Nuclear Regulatory Commission (NRC), FTC and DOJ, and Dominion’s three state commissions.

What is clear is that NextEra and Dominion would not have reached an agreement if they and their high-priced lawyers had already considered these hurdles. The ultimate outcome of the proposed deal is less clear.

Hot shot → If you’re looking to make a trade on this, Jefferies says people will now bid on both Duke Energy ( DUK ) and Southern Company ( SO ) as potentially “safer places” in the near term.

Hot shot #2 → Settlement or no settlement, attorneys on all parties to this transaction will be paid. Think law school, kids!

Now, let’s look inward to the already huge but still growing world of liquefied natural gas.

We had two big meetings on LNG. Actually three to be honest (and we always are). The first two were with U.S. Secretary of Energy Chris Wright, and the third was with the Governor of Louisiana.

We started the day before sunrise and spoke with Secretary Wright in Port Arthur, Texas. The interview was also the first look at Exxon Mobil’s massive new Golden Pass export facility.

Note → QatarEnergy is the main owner of Golden Pass and security is high as its assets in the Middle East have been hit by Iran. We’re grateful Exxon Mobil let us in the doors

In the morning interview, Wright was optimistic that China would become a larger buyer of U.S. crude oil. He also believes America will soon have more oil coming out of Alaska, a topic my friend and colleague Morgan Brennan talked about with ConocoPhillips CEO Ryan Lance the same day in Alaska. Friends, never let it be said that CNBC isn’t doing its best for you.

We then hopped into our rented VW Touareg and sped east about 60 miles to Cameron, Louisiana, and the famously energetic Calcasieu Pass. Pass – or CP to insiders – is the future home of Commonwealth LNG’s massive new export facility. We were there during the groundbreaking, which lasted nearly ten years (see Domestic Line More below).

We also had the honor of speaking with Louisiana’s enthusiastic Governor Jeff Landry. Landry is excited about the possibilities for natural gas, LNG and artificial intelligence. The governor was proud to highlight that his state has led America to the top in LNG exports. But our real question was direct: Does Louisiana have enough natural gas to power both the LNG export boom? And Fueling artificial intelligence’s dreams of electricity? Landry said the answer is yes.

WALL STREET’S ANGLE → What if oil and bond yields stay higher for longer?

Power Insider is about energy, and so is the latest stock market. Energy stocks have gained an average of 35% this year; that’s more than double that of the second-best-performing group, Information Tech, up 16%. While energy still makes up a small portion of the overall stock market, investors in ETFs such as XLE, XOP, OIH have performed quite well.

As oil rises, the government’s borrowing costs also increase. This week, the 30-year US Treasury bond hit 5.17%, its highest level since before the subprime crisis in 2007. Oil is a big part of the inflation story, so it’s a big part of the bond market movement. As oil rises, bond yields often follow.

As Bespoke Investment Research points out, the energy component of the CPI has increased by 130% year-on-year in just two months. This is the second-worst two-month increase in recent history, second only to the response following Hurricane Katrina in 2005.

So what happens now?

The next ‘battle’ will be between rising inflation risks and AI’s superspending cycle. If the hundreds of billions of dollars of capital spending around AI infrastructure every few months continues — and there is no indication it won’t — it could dwarf the risks of higher energy and inflation in the market.

Goldman Sachs says the key to stocks right now is earnings. The firm noted that the recent rise “corresponds with an increase in near-term earnings estimates,” which are up 8% YTD. But don’t be complacent. Goldman also warns that we may experience some weakness in equities in the medium term. The firm’s data shows there have been only 11 similar stock rallies since 1980. In these, markets historically rise for a short period of time and then face “soft returns over the next few months.” In other words, it could be a flat summer or even a lower summer.

Evercore ISI’s Julien Emanuel seems more optimistic. His strategist’s year-end target for the S&P 500 is 7,750. but it also shows an ultra bullish expectation of up to 9,000. Emanuel emphasized that “the pandemic changed everything,” including the course of the market. He writes that the possibilities for what he calls “extreme outcomes” are higher on both sides. Emanuel advises investors to look at the options market, recommending that they buy the SPY July 775C/725P collar in the event of an “unimaginable rally” in both the bond market and oil prices in the short term.

My opinion → Here’s an AI trade with energy that doubles your money

We are talking about the stock market. If there wasn’t another RBI for you this week, this would be a great one (random but interesting!).

If you’re invested in the basket of “AI giants” spending hundreds of billions of dollars building out data centers, you’ve done well. An equal-weighted basket only gave you around a 7% gain this year, but you’ve gained a much better 43% in the last 12 months. But you would do much better if you instead invested the same money in a group of companies building AI infrastructure and energy resources.

Actually last year Really doubled your money.

Meta and Microsoft shares were actually lower than last year. Nvidia seems stuck after last night’s gains.

But look at the infrastructure list. And yes, by the way TeraWulf (WULF) It generated the bulk of the profits; data center builder Equinix (EQIX), engineering and power management company Eaton (ETN), and composure company Trane (TT) also performed well. Investor money has changed, at least for now.

Take a look → Recently, the only thing passing through the Strait of Hormuz has been water. But there are early signs that tanker traffic may finally be starting to recover. In this video I explain this in detail:

This week’s RBI tells you clearly: the Strait of Hormuz gets all the attention but little is talked about Asia Strait of Malacca It is actually a major oil and liquid transit point. JPMorgan commodity analysts put it nicely.