Forget Tech Stocks and Buy This Energy Stock That's Fueling the AI Boom

If you want upside from the AI boom but don't want direct exposure to tech stocks, energy looks like the next best option.

But not all opportunities are created equal. Constellation Energy (NASDAQ: CEG) has become Wall Street's favorite AI power story, riding a narrative that nuclear energy will fuel the next wave of data center growth. But the fundamentals tell a more complicated story.

CEG is priced for a future that hasn't arrived yet. The stock trades at 41x trailing earnings on a ~$109 billion market cap, while full-year net income fell 38% year-over-year to $2.3 billion.

While the company did have a Q4 revenue beat, it was a 13% increase from the prior year quarter. Decent growth, but not worth a 41x multiple on its' own. Meanwhile, the stock is already down 18% year-to-date from its January peak. It's simply a crowded trade losing altitude before the fundamentals have caught up to the hype.

Devon Energy (NYSE: DVN) on the other hand, presents a contrasting set of fundamentals that analysts are beginning to examine more closely, and almost nobody in the mainstream financial press is talking about it.

The Real AI Power Connection

Hyperscale data centers powering AI workloads consume enormous amounts of electricity, and natural gas is the dominant fuel source for new power generation in the United States. Devon isn't just a passive beneficiary of this trend. The company has signed a 7-year gas supply agreement to deliver 65 MMcf per day to a proposed 1,350 MW power plant tied directly to AI-driven electricity demand, effective 2028.

It also locked in a 10-year LNG export contract for 50 MMcf per day, also effective 2028. These are contracted cash flows, not power purchase agreements built on hopes that nuclear plants restart on schedule.

Image source: Getty Images

The merger creates a structural catalyst

Devon announced an all-stock merger with Coterra Energy (NYSE: CTRA) on February 2, 2026, expected to close in Q2 2026. Devon shareholders will retain approximately 54% of the combined entity, with $1 billion in targeted annual pre-tax synergies. When the deal closes, the quarterly dividend increases 31% to $0.315 per share, and a new share repurchase authorization exceeding $5 billion kicks in. CEG investors, by contrast, are waiting on a guidance call and a promised 10% dividend increase on a quarterly payout of $0.4265. Devon's shareholder return events are concrete and imminent. CEG's are still on the calendar.

The free cash flow story is already written

Devon generated $3.1 billion in free cash flow in 2025, up dramatically year-over-year, against a market cap of roughly $28.7 billion.

Compare that to CEG's $109 billion market cap on $2.3 billion in net income that fell 38% and it's clear which is the better play.

Devon also cut capital expenditures to $3.6 billion in 2025 while growing oil production to 390,000 barrels per day in Q4, exceeding the top end of its own guidance.

Devon trades at 11x trailing earnings. Constellation trades at 40x. Both are energy companies fueling the AI buildout. Only one is priced like it.

Devon Energy and Coterra Energy are scheduled to complete their merger in Q2 2026. Analysts will be watching whether the combined entity's valuation reflects the contracted cash flows and synergy targets outlined by management.

Austin Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy. The Motley Fool has a disclosure policy.