Infrastructure investors say AI data centres will generate new demand for energy suppliers.Clodagh Kilcoyne/Reuters
Infrastructure plays – considered to be more defensive and less volatile than other stocks – may offer investors some comfort and even opportunities as the Iran war roils global markets.
These investments are not totally immune to sell-offs, but parts of this sector – often seen as a traditional yield play – are also getting new tailwinds from artificial intelligence data centres.
Globe Advisor asked three portfolio managers for their top North American stock picks among infrastructure plays.
Kevin McSweeney, portfolio manager, lead for Canadian equities and head of global infrastructure, CI Global Asset Management, Toronto
His funds: CI Global Infrastructure Fund and CI Global Infrastructure Private Pool ETF CINF-T
His pick: Keyera Corp. KEY-T
This Calgary-based energy infrastructure company will benefit from natural gas demand from data centres and growth potential from its underutilized gas plants, Mr. McSweeney says.
Keyera processes and transports natural gas and natural gas liquids (NGLs). It has struck a deal set to close in May to buy Plains All American Pipeline LP’s PAA-Q Canadian NGL business, but the acquisition synergies have not yet been fully priced in by the market, he says.
Given disruptions from the Iran war, Keyera should also become more attractive to Asian companies looking for non-Middle Eastern sources of NGLs, he adds.
Keyera is a defensive play because “the things that are likely to make it work are reasonably predictable,” Mr. McSweeney says. Its stock trades at 10.5 times enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA), which is in line with its historical averages, he says. There is cyclical risk because energy demand depends on economic growth.
His pick: CenterPoint Energy Inc. CNP-N
The Houston-based natural gas and electric utility is getting a tailwind from a population boom in Texas, rising industrial demand and massive growth in AI data centres, Mr. McSweeney says.
CenterPoint also benefits from a regulator that allows it to recover costs for upgrading its grid for extreme weather. It expects earnings growth in the high single-digits this year, he says.
Its stock is defensive, as CentrePoint provides essential services and its utility rates are regulated, he adds, and it trades at reasonable valuation, which is slightly above that of its peers.
Potential risks include data-centre demand not materializing as expected, disappointing economic growth and changing regulations that could impact operations negatively.
Laura Lau, senior vice-president and chief investment officer, Brompton Funds Ltd., Toronto
Her fund: Brompton Global Infrastructure ETF BGIE-T
Her pick: Ferrovial SE FER-Q
The Spanish-run infrastructure giant, which owns 48 per cent of Ontario’s Highway 407, benefits from this toll road’s rate increases, rising traffic and long-term earnings growth potential, Ms. Lau says.
Ferrovia, which moved its head office to Amsterdam in 2023, is a global developer and operator of highways and airports, and also offers engineering services.
It’s a defensive stock because it provides essential services and generates steady cash flow, she says. Its valuation is never cheap, but the stock’s slide from its 52-week high is a buying opportunity, she adds, noting its shares can tumble on profit-taking.
A risk is a sharp economic downturn that could impact toll-road traffic volumes.
Her pick: NextEra Energy Inc. NEE-N
This utility, which is also the largest U.S. renewable power producer, benefits from Florida’s population growth and accelerating electricity demand from data centres, Ms. Lau says.
Juno Beach, Fla.-based Nextera also did a deal last year with Alphabet Inc.’s GOOGL-Q Google unit – a hyperscaler operating massive cloud computing infrastructure – to resurrect an Iowa nuclear power plant by 2029 to meet AI demands.
NextEra’s shares are defensive because it operates Florida Power & Light Co., a regulated utility that also has an approved return on equity of almost 11 per cent, she says.
The utility is targeting a compound annual growth rate in earnings per share of 8 per cent or more to 2032, she adds. “Its stock trades in line with the market.”
Rising interest rates could raise debt costs, she says, but NextEra has shown through its earnings that the impact would be negligible.
Jeff Sayer, vice-president and portfolio manager, Ninepoint Partners LP, Toronto
His fund: Ninepoint Global Infrastructure Fund INFR-T
His pick: The Williams Companies Inc. WMB-N
Williams, a natural gas storage and pipeline company, will benefit from growing power demand at AI data centres, Mr. Sayer says.
Headquartered in Tulsa, Okla., its pipelines deliver a third of U.S. gas. Earnings are expected to grow due to increased demand, expansion of the Transcontinental Gas Pipe Line, and supplying power directly to hyperscalers and large-load industrial customers.
Williams is defensive because it gets stable cash flow through long-term contracts, he adds. Its stock trades at about 15 times EV/EBITDA, which is a “reasonable valuation,” he says.
The risk is if AI data-centre demand does not meet expectations.
His pick: NRG Energy Inc. NRG-N
This U.S. power company, which also has a retail electricity and home services division, is well-positioned for a wave of energy demand from AI data centres, Mr. Sayer says.
Houston-based NRG Energy closed a deal in January to acquire natural gas plants from LS Power Equity Advisors LLC. NRG Energy’s assets are now about 50 per cent in Texas and 40 per cent in the northeast U.S., he says.
This stock is a defensive play because it delivers electricity, which is a stable business, he says. It’s targeting 14-per-cent annual growth in adjusted earnings per share through to 2030.
NRG expects to do a data-centre deal soon with a hyperscaler to take one gigawatt of power, he says, which would give investors confidence that it can meet its target of six gigawatts of growth.
The risk is that the data-centre trade fails to meet expectations.