AI Power Stocks Fell 7% to 13% in a Week While Exxon and Chevron Just Hit Record Highs. Here's Which Side I'd Rather Own.

Artificial intelligence (AI) is the hot topic on Wall Street and Main Street right now. But for those old enough to remember, the environment may be starting to feel like the dot-com bubble, which burst at the turn of the century. Companies like Oklo (NYSE: OKLO), NuScale Power (NYSE: SMR), and even Constellation Energy (NASDAQ: CEG) all fell around 7% from their highs over the last five days, as of this writing. Bloom Energy (NYSE: BE) is down 13% from its high in that shockingly short period.

Meanwhile, ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) are hitting all-time highs. There's risk in all of these stocks, but I'd rather own the stocks where the risks are easier to see and understand. That means Exxon and Chevron would be my pick. Here's why.

Image source: Getty Images.

What happens when the AI bubble bursts?

The capital spending going into artificial intelligence is massive. AI is just a computer program, so it needs electricity to operate. That should lead to strong demand for power. That's the basic story behind companies like Oklo, NuScale, Bloom Energy, and Constellation Energy.

Of the four, Oklo and NuScale are the most speculative. These two companies are attempting to build businesses around small modular nuclear reactors. The opportunity could be huge, but at this point both companies are losing money and haven't yet proven their technologies are financially viable. Only the most aggressive investors should be considering them.

Bloom Energy and Constellation Energy have established and profitable businesses. Bloom Energy makes hydrogen fuel cells that provide off-grid power to AI data centers. Constellation Energy is an independent power producer selling power to the tech companies building out their AI operations. Bloom is the more aggressive option, as investors have priced a lot of good news into the stock. Even after a material pullback, the price-to-earnings ratio is still over 100x. Constellation Energy is probably the best positioned to weather an AI pullback, given the long-term contracts it signs, but irrational investors tend to throw the baby out with the bathwater when things turn south. If the AI bubble bursts, all of these stocks are likely to be hard hit, and the pullback over the last week is a sign of the all-or-nothing approach investors often take with new technologies.

Exxon and Chevron are built to survive

Meanwhile, the geopolitical conflict in the Middle East has pushed oil prices higher, resulting in strong rallies for Exxon and Chevron. Both energy giants are trading near all-time highs, which is something history has shown won't last. Eventually, oil prices will fall, and so will Exxon and Chevron's stock prices. But I'd still rather own an integrated energy giant over the AI power stocks above. The big reason: the energy cycle is well understood by the market and by these integrated energy giants. They will survive in relative stride if history is any guide.

Exxon and Chevron are standouts in the integrated energy sector because of their long histories of annual dividend increases. Exxon's streak is up to 43 years, while Chevron's streak is at 38 years. Meanwhile, they both have extremely low debt-to-equity ratios, at 0.16x and 0.2x, respectively. When the oil market corrects, they will handle the hit to their businesses in relative stride and, likely, continue to reward shareholders with reliable dividends.

It isn't clear what to expect from AI power companies, given that their stocks are being driven higher and lower by rapidly shifting investor sentiment. Some, like Oklo and NuScale, may never achieve profitability. Others, like Bloom Energy and Constellation, may not live up to investor expectations. Chevron and Exxon, on the other hand, have proven they can survive the full energy cycle and, given their strong financial positions, appear well positioned to do so again.

I prefer risks I can understand

I understand why investors are excited about Oklo, NuScale, Bloom Energy, and Constellation Energy. But I have a hard time quantifying the risk given the AI theme that is moving their stocks higher and lower. If I'm going to take on a risk, I prefer it to be one I can get my head around. The risks Exxon and Chevron face in the oil industry are fairly well defined by history. And so is their ability to deal with those risks. I'd rather own them and collect their reliable above-market yields of 2.2% and 3%, respectively. I don't know what to expect from companies that have tied their futures to a new technology whose future is still uncertain.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bloom Energy, Chevron, and Constellation Energy. The Motley Fool has a disclosure policy.