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Prediction: Microsoft (MSFT) Is Going to Save the Fossil Fuel Industry to Power Its Billion-Dollar Buildouts

Austin Smith

Published: January 17, 2025 9:20 am

24/7 Wall St. Key Points:

• Given the constraints of the U.S. energy system, Microsoft Corp. (NASDAQ: MSFT) intends to spend $80 billion in AI infrastructure, including server farms, raising questions around overstretch of its financial and electrical resources.
• Rising demand for energy from artificial intelligence data centers will help utility businesses like Constellation Energy Corp. (NASDAQ: CEG) and Avista Corp. (NYSE: AVA) as well as propel expansion in natural gas suppliers including EQT Corp. (NYSE: EQT) and Kinder Morgan Inc. (NYSE: KMI).
• To take advantage of the rising demand for dependable power sources, investors are urged to review tech-heavy portfolios and consider moving money from Microsoft to energy and natural gas equities.
• If you want the extra income dividend stocks promise, consider a top-rated cash back credit card as well. Some of the best pay 2%, even more. See our favorites here.  (sponsored)

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Transcript:

[00:00:04] Douglas McIntyre: So Microsoft announces yesterday that in the next year, it’s going to put 80 billion into AI. Basically server farm. Um, now I want you to think about something. In the last reported quarter, Microsoft’s total revenue was $65 billion and their earnings were about 12. So think about it, that’s, that’s a lot of money, but 80. to one quarter. It’s a hu they had 75 billion in c

[00:00:37] Lee Jackson: fiscal 2025. So that’s within, you know, 18 months.

[00:00:42] Douglas McIntyre: t and short term, uh, in cash in short term.. Cash equivalent in their balance sheet. I understand they can borrow money at probably one and a half percent, but it shows you something. All of them are going all in. Maybe

[00:01:00] Lee Jackson: Yeah. Yeah, yeah,

[00:01:04] Douglas McIntyre: one of those poker games in Las Vegas that they televise. Amazon’s going in, They are spending money on server farms, Microsoft, Google, can’t make enough chips, you know, for, for, for certainly make enough chips.

[00:01:21] Lee Jackson: and people are starting to make their own chips, you know, and so that’s, that’s going to force a new round of, of battling and headbutting between the big companies and the sheer size of that Microsoft. Spending threat for for lack of a better terms is is just staggering and and they can float You know, obviously they can go out and float a easily floated 10 15 20 billion dollar Bond issuance or something of that nature and maybe float more stock.

[00:01:55] Lee Jackson: But yeah that it’s they just can’t write a check for that That’s for sure

[00:02:00] Douglas McIntyre: Well, I think it comes down to two things. The first one is, is Microsoft out over its skis? I’m going to say yes. I think the

[00:02:07] Lee Jackson: I’m gonna say yes as well.

[00:02:09] Douglas McIntyre: to make money on AI is than the chat features. You can download on your phone. The chances of making a lot of money on AI are pretty, And the other problem, which doesn’t get mentioned is, is that you take the U.S. grid and they said, half of this is going to be spent in, so 40 billion in the U S you take the grid and you take the source of the electricity. I know they’re going to spend the money, but where are they going to get the electricity? I

[00:02:36] Lee Jackson: Well,

[00:02:37] Douglas McIntyre: Yeah.

[00:02:38] Lee Jackson: that comes to a very, very interesting point. Um, I, I read, I recently read an article, there’s a substack group called Loomberg, not Bloomberg, but Loomberg. And you know, these guys are very likely the smartest guys in the room, or at least they, they think they are. And I think they’re real smart.

[00:02:57] Lee Jackson: Well, one thing they did smart was they went to a subscription model, which is more than I want to pay. So I don’t get as much as I used to, but I recently got a new one from them where they do every once in a while, the adhesion throughout an entire one. And it was about that natural gas usage. That is being used now for cars and all that.

[00:03:19] Lee Jackson: And, but what it was is, uh, would, will, you know, to, to run all these server farms and these huge data centers that are AI driven, where are they going to get the electricity? The current grid in the United States is fully. You know, tapped and it’s held together with, you know, duct tape and bailing wire and chewing gum and all sorts of crap.

[00:03:41] Lee Jackson: And their premise was they’re going to go to NatGas and they’re going to go to, and literally, you know, there’s companies that are literally out in the Permian basin, just literally saying, look, come and build your, uh, AI business. either chip plants or build your AI, uh, data centers out here and we’ll supply the natural gas for your electricity.

[00:04:08] Lee Jackson: And at first I was like, there’s no way this happens. But then the more I thought about it and the more I read through this article, I was like, You know, there’s a darn good chance because natural gas is so plentiful in the United States and it’s cheap here. LNG is cheap here as, as compared to in Europe or in Asia.

[00:04:27] Lee Jackson: And if they can start running these huge, um, utilities on Nat, strictly Nat gas. Boy, the nat gas business here could take off.

[00:04:37] Douglas McIntyre: Now you’ve recommended some utilities. You like some of the utilities now because of this.

[00:04:43] Lee Jackson: Yeah, I mean, in Vista’s big, it’s had a huge run a constellation, you know, that’s in, uh, you know, a lot of the data centers are in the Washington, D. C.

[00:04:55] Douglas McIntyre: Yeah. Yeah.

[00:04:56] Lee Jackson: You know, and in Arlington and D. C. And around there. And so, uh, you know, Constellation’s big and Vista’s big. There’s they’ve they’ve torn it. They tore it up last year.

[00:05:07] Lee Jackson: I think in Vista was the top, you know, returning stock on the S and P 500 last year. So it should do. They are burning through the power big time. And if they’re going to continue to have huge, gigantic data centers, you know, run by digital realty and equinox and people like that, They’re going to need more power.

[00:05:26] Lee Jackson: They’re clearly going to need more power.

[00:05:29] Douglas McIntyre: Well, I think that that part of what we’re saying here is, is that there’s some utilities people ought to look into. There’s some utilities that are, even though their price stock prices are up.

[00:05:38] Lee Jackson: Absolutely.

[00:05:39] Douglas McIntyre: because the we’re not at the, we’re still in the early stages of a growing need for electricity.

[00:05:46] Lee Jackson: Yeah, and another premise they were putting forward because, you know, we’ve heard all this discussion of Microsoft talking to nuclear plants and, you know, building many nuclear plants, but that’s not something you can do real quick and, you know, you can’t build reactors real quick and you’ll have to get approval for all of that.

[00:06:04] Lee Jackson: And that could take forever with the government. So I think the, the, the utilities are going to do good regardless. But I think, I think, you know, the, the mere, you know, Fact that oil companies, oil and gas exploration companies are telling them, Hey, come to the Permian and, you know, build out here. I think that shows you that, that they don’t think nuclear is going to come online as fast as they’d like it to for the, for the need and the demand.

[00:06:29] Douglas McIntyre: well, it’s a reason to look at oil and natural gas stock

[00:06:32] Lee Jackson: Yeah,

[00:06:33] Douglas McIntyre: there

[00:06:33] Lee Jackson: because I think oil prices are, you know, could stay locked where they’ve been for the last year between 65 and 75 forever

[00:06:42] Douglas McIntyre: yeah, but I, I think people ought to look at some of the energy companies too, because. that solar and wind and these tiny nuclear reactors are going to be online fast enough,

[00:06:54] Lee Jackson: now.

[00:06:54] Douglas McIntyre: You look at, you look at what’s powering utilities now, and I would say buy stock in the companies that power utilities today,

[00:07:03] Douglas McIntyre: who are going to power utilities maybe. In five

[00:07:07] Lee Jackson: Right. Right. And some of those, I mean, all the big integrated, of course, have natural gas divisions, you know, Conoco (NYSE: COP) and Mobil (NYSE: XOM) and Chevron. But there’s companies like EQT (NYSE: EQT) and companies like that that are really oil or natural gas specific. And also some of some of the people like like Kinder Morgan, because they carry all that nat gas.

[00:07:33] Lee Jackson: So if there’s even more demand for gas, You know, the, the major MLPs that pay a really solid distribution will be, they’ll be needed as well. So yeah, I think, I think our, our viewers and, and in 24/7 Wall St. readers should definitely look at nat gas and energy stocks. I think you’re a hundred percent right.

[00:07:52] Douglas McIntyre: Hey, and also if you own some Microsoft, this might be a good time to think about whether you want to offload

[00:07:59] Lee Jackson: A few chips off the table there.

[00:08:01] Douglas McIntyre: want it, you may want to put it into oil stocks instead.

[00:08:05] Lee Jackson: Well, you know, they’re, they’re talking about a collaboration with, you know, open AI and all that. And so, but again, like we’ve talked about a lot of times, you, you know, you can get on ChatGPT for free, you know, it doesn’t cost anything. So how are they going to make this? You know, really workable, you know, at an enterprise level.

[00:08:27] Lee Jackson: And I think that’s, that’s what you need to look at is the enterprise guys who have recurring revenue.