24/7 Wall St. hosts Doug McIntyre and Lee Jackson analyze a major move by BlackRock to acquire the utility company AES, describing it as the beginning of a larger wave of consolidation across the utility and banking sectors. It could signal how companies like BlackRock might be positioning themselves to control the energy sources needed to power data centers and AI infrastructure. The acquisition price, even if in the tens of billions, is relatively insignificant for a company of BlackRock’s size, but the strategic implications are enormous. Similar partnerships could begin to form with investment firms, AI companies, and utilities working together to secure both funding and energy. Lee points out that utility stocks have surged recently, reducing dividend yields as prices climb, and says this trend reflects the growing recognition of energy’s critical role in AI’s expansion. He also warns that the U.S. power grid is underdeveloped and unprepared for the massive new energy demand, referencing past grid failures like the 2021 Texas freeze. Doug believes this will spark a huge infrastructure play, as capital floods into grid modernization projects to ensure reliable energy transmission. They identify EQT, Kinder Morgan, Williams, Exxon, and Chevron as strong plays in this space, offering solid dividends and growth potential. Both agree that energy, especially natural gas and utilities tied to AI development, will be one of the most reliable long-term investments as the sector evolves to meet the technological future.
Doug McIntyre: So, Lee, the, you know, the, some of the smartest people on Wall Street, there’s been a recent transaction, which I think is important. You want to sort of walk us through it?
Lee Jackson: Well, you know, this kind of was all summer long this was kind of simmering that AES, which is a big utility. Was, you know, people were scouting that and it sure enough, in the last week or so, it turned out that the gyp or the GIP section of BlackRock, which is gigantic of course, is gonna buy the whole kit and caboodle for a stunning price. And, but that’s the start. That’s the start. You’re gonna see BlackRock, all these big money managers are gonna go get a piece of utilities and then make deals with the AI and the data center and all that, and the mere fact and AES, you know, it was trading, you know, I used to use it a lot as a great low price stock to buy because it was even 10, 11, 12 bucks for years. And then all of a sudden it jumped up to maybe 15 or 16 on that report. And then sure enough, it looks like a done deal. And for BlackRock, that’s nothing, you know, 10 billion or 20 or 30, whatever their, their purchase price is meaningless. That’s nothing, you know. But it, it’s the, it’s the, we’re gonna see more of this. We’re gonna see more, and we’re gonna see more consolidation, not just in utilities, but you’re gonna start to see it in banks. Like we saw today with Fifth Third buying Comerica, which is a big purchase. It’s $10 billion, you know, and Co Comerica was based up in Michigan, and then they moved to Dallas, and that’s a pretty sizable purchase. But I think the consolidation is coming and you’re gonna see it in utilities. And you know, if they have to, if the big players in AI and data center, cloud computing, if they need power, they’re gonna go out and buy it. And if they don’t have the money, they’ll go to BlackRock and they’ll have them buy it and they’ll pay them down.
Doug McIntyre: Well, yeah. So this goes back to the whole, you know, odd marriages that go on. First, I know utility stocks are up, up some because of the, the AI demand, but if you said to me, do those stocks still have a ways to run? My answer is yes. The need for energy for AI is, is insatiable. But I also think that you’re gonna start to see three way deals. You get BlackRock by utility. And it puts money into an AI company and you end up having, we’ll provide you, we’ll invest in your company and then you’ll help provide us power. It’ll be just like what we talked about before. It’ll be the round tripping of money that comes. You’ve got chip companies and AI companies. You can now, to me, utilities are a fascinating play, and that is, as you may see, utilities either start to be invested in or them investing in people who are in this food chain that has to do with AI, chips and energy. I love utilities right now.
Lee Jackson: It, well, it’s, it’s, we’ve written about this for over, well over a year and it’s been, it is just been on fire. I mean, Constellation’s almost doubled in the last year plus, and it’s trading in the $30-$40 range. But every good utility, which two and three years ago, were all yielding three and a half, 4%, four and a quarter more. Not anymore. Not anymore. ’cause when those prices go up, those dividend payments remain the same so the percentage yield comes down just like on a bond. So I think you’re right. I think we’re gonna see more and more of this, and you’ll see BlackRock, you’ll see the big hedge funds. You will see, you know, people with the power and the money and the ability to get the money. They’ll go out and they’ll start buying them. And I think this is gonna be a trend that we’ll see. It’s gonna exist for a long time because the power needs, the problem is, is the American electrical grid is so underdeveloped and under maintained over the last 50 years that it is, it can barely handle just standard grid. We saw what happened to the Ercot a couple of years ago in Texas when, when everything froze and they were, you know, they, a big part of their, their production was renewables. And when, when they froze because of all the ice and everything, it was a catastrophe. And you know, I, there’s people that didn’t have power in the dead of the winter in Texas, you know, which is contrary to what, what folks up north would think. It can get pretty cold, you know, it was bad. So if, if that’s just the normal infrastructure, wait till you plug in, you know, megawatt data centers that are just snorkeling up power.
Doug McIntyre: Well, it’s interesting to think about this. There will be an infrastructure play when it comes to rebuilding the grid.
Lee Jackson: Yes.
Doug McIntyre: Because, and, and there are companies who can write those checks now. I mean, if you said to me it’s gonna cost half a trillion dollars to, you know, redo a lot of the grid, I’d say that money wasn’t available at all a year ago. Now that the grid has become essential to the future of AI, you watch these, these, there will be capital going into these utilities for the purposes of upgrading your grid, not just for electricity generation, but in essence setting up the systems that allow people to move that electricity.
Lee Jackson: Well, and we’ve had this discussion, you know, it’s, you can’t quickly throw up a small nuclear reactor. You just can’t do that. But we’ve got more natural gas in the United States and in Alaska, offshore, any place in the world, and they can run a zillion power plants on natural gas. So, like we’ve discussed utilities still a solid play going forward and there’s still some that pay good, you know, three and a half and 4% dividends, but also going forward natural gas ’cause it’s only about three bucks. And if it gets rolling, if it, it’s really rolling, it could double or triple in a couple of years.
Doug McIntyre: What are some of the names you like there?
Lee Jackson: Well for strict natural gas plays, I love EQT and it’s simple. EQT. They’re the biggest natural gas company in the United States from as best I can remember. But then there’s people like Kinder Morgan, KMI. Which pays a good dividend, four and a half, 5% dividend. Kinder Morgan is in the job of transporting natural gas and all of their contracts are fixed year in and year out. And, you know, they renegotiate, but it’s not the, the, the spot price of Nat Gas or oil doesn’t really affect them ’cause they have contracted money. So I think that’s a good one. Some of the other ones like Williams, probably a good play. And then just the big, um, the big boys, I mean, like you were saying, Exxon, huge natural gas presence, Chevron, huge natural gas presence, and both pay at least Chevron’s dividends over four. And, and Exxon’s is three and a half. So, I mean, if you wanna play it safe, play the big boys, but boy, the opportunity’s out there and they’re all cheap because energy’s been out of favor for the last year.
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