This Boring Pipeline Stock Just Signed a Deal to Power AI Data Centers

The AI power story has been all over the news in the past year. It powered a massive run-up in nuclear energy stocks on the hope that they'll play a key role in supplying power-hungry AI data centers. Meanwhile, several utilities have signed mega deals to supply power to data centers.

However, they're not the only ones benefiting from the AI power megatrend, as even boring pipeline companies are getting in on the action. The latest is ONEOK (NYSE: OKE), which signed an agreement to supply a 1-gigawatt power plant with gas to meet data center demand. That likely won't be the last deal the pipeline stock signs to power AI.

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The growing need for speed

Data center developers need a lot of power, and they need it fast. The grid is struggling to keep up with this warp speed. That's leading many data center developers to bring their own power to a project in the form of gas-fired generation or fuel cells, which are much quicker to deploy than nuclear power and don't require the grid interconnection of off-site renewables. That's driving robust demand for natural gas. According to a forecast by Wood Mackenzie, gas demand by the U.S. power sector will surge 47% by 2035, driven in large part by data centers.

That's providing opportunities for pipeline companies like ONEOK to build pipeline laterals to new gas-fired power plants and AI data centers. This particular project is relatively small compared to ONEOK's overall growth story. The total capital cost of $100 million is a rounding error compared to its $2.7 billion-$3.2 billion capital expenditure guidance range for this year. However, COO Sheridan Swords noted on the second-quarter call that it has a "very nice return." Further, the COO hinted at more to come, stating, "We also are in late stages of discussions with a couple of other opportunities to be able to supply AI data centers." Several high-return projects on a long-tail growth trend can really add up over the years. It could also provide more downstream growth opportunities through larger-scale pipeline capacity expansions.

Already growing at a solid clip

Pipeline stocks like ONEOK tend to be boring investments because they offer reliable dividend income (ONEOK currently yields more than 4.5%). However, ONEOK provides a bit more excitement than investors might realize. Its net income jumped 13% in the second quarter, fueled by strong volumes, including record NGL raw feed volume. That strong showing, along with the upcoming completion of some strategic growth projects, gave ONEOK the confidence to boost its full-year net income forecast to $3.6 billion at the midpoint.

It has visible growth coming down the pipeline from capital projects, with expansions currently scheduled to enter commercial service through the first half of 2029. Included in that list are a large-scale joint-venture gas pipeline project and a gas storage expansion. Additional data center gas pipeline expansions would be additive to an already solid long-term growth story.

Starting to get a boost from the AI power megatrend

The AI power megatrend extends well beyond once-hot nuclear stocks and utilities, with even pipeline companies like ONEOK starting to capitalize on this growth trend. While it's starting small, more deals will likely follow, giving investors something to monitor. They could turn this sleepy pipeline stock into an even faster-growing company.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Oneok. The Motley Fool has a disclosure policy.