By Teresa Rivas

The internet was once infamously referred to as " a series of tubes" by an Alaskan senator. That's certainly not the case, but as artificial intelligence and cloud data centers demand more and more energy, pipelines are playing an increasingly important role in the digital world. And that's just one reason to buy Kinder Morgan.

This isn't a new idea: Enthusiasm about AI has boosted valuations across sectors like technology and utilities for years, and natural-gas-focused pipeline operators like Kinder Morgan since 2024. Today, however, the stock looks reasonably priced, with a growing backlog and mounting evidence that any trade disagreements with China won't dent demand. Add in an energy-friendly administration that could greenlight new projects, and the shares could surpass their January highs.

It's safe to say that natural gas -- Kinder Morgan's bread and butter -- is having a moment, up about 10% in the past month. Price increases are being driven by surging demand for liquefied natural gas, or LNG, around the world as a cleaner alternative to oil and coal, while storage facilities are at maximum capacity. Kinder Morgan has previously forecast U.S. natural gas demand to increase by 20 to 28 billion cubic feet (Bcf) per day by 2030 from 109 Bcf currently.

"You can't build a nuclear facility overnight," says Ben Cook, portfolio manager at the Hennessy Midstream fund, which owns the stock. "In a world where Nimby ["not in my backyard"] issues are critical, many of the incumbent pipelines in the industry are in a monopoly environment. It's difficult to replicate or duplicate the size of those projects at all."

That means companies like Kinder Morgan and Williams Cos. have the field nearly to themselves. Kinder Morgan's particular geographic footprint makes it especially attractive, Cook notes. For example, it may expand capacity from existing assets in Texas into Arizona, a hotbed of data center development.

You don't have to be an AI believer to like Kinder Morgan. BofA Securities analyst Jean Ann Salisbury called the stock one of her two favorites in the midstream space earlier this month, noting that while data centers may have been the main driver for the shares last year, 2025 has seen "broad-based activity" in the midstream natural-gas space.

Not only is the Trump administration making it easier to build projects, but it also lifted the Biden-era LNG permit pause. In addition, "utilities likely now expect to need gas infrastructure well into the 2030s and are showing more willingness to pay up," she writes, explaining her decision to raise her price target by $2, to $32. The stock closed Tuesday at $28.54.

Consensus estimates call for Kinder Morgan's earnings per share to climb more than 10% this year, to $1.27, which would be its second-best year on record.

Investors may have been concerned that the ongoing tariff standoff with China would hurt LNG demand, and by extension Kinder Morgan, but that hasn't happened, given a strong appetite elsewhere in Europe and Asia. The company has noted that even though China hasn't imported U.S. LNG since February, demand has continued to set new records, as Gimme Credit senior analyst TL Tsang highlights: "We expect Kinder Morgan to be insulated from tariffs and [it] could even benefit from increased demand for U.S. natural gas from governments using LNG imports as a bargaining chip."

Likewise, with no signs of a slowing economy and amid ongoing AI funding, the domestic demand picture remains robust too. That means that a "significant number" of natural-gas power plants that may have been slated for closure in the near future will remain in service longer than expected, says Hennessy's Cook: "Deferring the retirement of plants is sometimes the easiest way to add production capacity to a market that's starved of new generation. That's an underreported driver of natural-gas demand."

That's good news as long as natural-gas prices hold up, but skeptics might worry that as the impact of tariffs and U.S. policy uncertainty are more pronounced in the second half of the year, a shakier economic picture could emerge.

Even if natural-gas prices were to slip, contracts already in place with well-funded end-users like big AI players, fee-based revenue, and hedging means that only 5% of 2025 earnings before interest, taxes, depreciation, and amortization, or Ebitda, is exposed to commodity prices, notes Gimme Credit's Tsang. Meanwhile, Kinder Morgan's robust balance sheet means investors can sleep well at night: Cash flow from operations should fully fund its $3.2 billion in capital spending and $2.6 billion in dividends. The shares currently yield 4.1%.

Ultimately, Kinder Morgan has the right assets in the right places to keep winning. Pipelines like the one it operates are often the bottleneck for hot commodities. With its returns, shareholders could be popping bottles.

Write to Teresa Rivas at teresa.rivas@barrons.com

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June 27, 2025 21:31 ET (01:31 GMT)

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