The “Toll Road” of the AI Energy Boom

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The safest place in Russia’s gas empire just stopped being safe. 

Novy Urengoy is deep in the Siberian Arctic, in a region that pumps about 80% of Russia’s natural gas. 

Since their invasion of Ukraine, Russia’s military leaders have treated it as untouchable. It’s thousands of miles from the front, far enough to be out of the reach of even the longest-range Ukrainian drones. 

This week, they found out they were wrong. A newly developed Ukrainian deep-strike missile flew more than 2,000 miles at a speed of close to 900 miles per hour and hit a gas plant there. 

And Novy Urengoy isn’t the only place where energy facilities are under fire.  

In the Strait of Hormuz – one of the world’s most critical shipping routes – Iran said it attacked 10 ships, after the U.S. sank five Iranian tankers. 

And near the mouth of the Red Sea, Iran-backed Houthi militia struck four Saudi cities, setting fire to oil installations as they pushed to choke off another export route. 

Not since the oil shocks of the 1970s has so much of the world’s energy supply been threatened at once. 

And that’s only half of the story. 

At the very moment when supply is going up in flames, a new force is about to consume more energy than the world currently generates: artificial intelligence. 

A single data center can cover the footprint of a small town – and use as much electricity as one. The biggest ones now under construction will each need more electricity than the city of Pittsburgh. 

And there are hundreds more on their way. Meta, Google, and Microsoft have committed more than $1 trillion to build them. 

According to S&P Global, this will help push the world’s power demand up nearly 50% by 2040. 

When supply gets squeezed and demand explodes at once, there’s only one outcome. Energy becomes more valuable – and so do companies that produce and move it. 

Most folks are playing the AI boom through chipmakers like Nvidia and memory stocks like Micron. And these have been fantastic trades. 

But those stocks are also highly volatile. We saw it this summer, when Micron plunged as much as 41% and the semiconductor sector dropped into a bear market. Ride these tech plays up and you can do well – but you’d better have the stomach for the ride down. 

That’s why I keep coming back to a “toll road” AI energy play so dull most people scroll right past it. 

Today, I’ll show you what it is, why the safest-looking corner of this trade may be the smartest – and how it pays you better than 7% a year in income, on top of any capital gains. 

Energy Is in the Green Zone 

The big picture for energy is bullish. You can see that every time you see a new headline out of Russia or the Persian Gulf. 

But at TradeSmith, we don’t trade the headlines. We follow the data. And right now, the data is also pointing at energy. 

Of all the sectors we track, energy has more of its stocks in the Green Zone than any other. On our Short-Term Health reading, better than 80% of them are flashing green – more than 76% on the Long-Term reading, too.  

As you can see, no other sector comes close. 

And you can see that relative strength in individual energy stocks, too. 

As I posted on X yesterday, U.S. oil majors Chevron (CVX) and ConocoPhillips (COP) just hit all-time highs. So did Canadian oil-sands producers Cenovus (CVE) and Suncor (SU), along with Norway’s state-backed oil and gas company, Equinor (EQNR). 

Each one is in the Green Zone on our Short-Term and Long-Term Health readings – meaning their trends are intact in the near term and the long run. And they’ve been enormous winners over the past 12 months: 

• Chevron is up about 40%. 

• ConocoPhillips is up about 50%. 

• Suncor is up nearly 70%. 

• Equinor is up more than 95%. 

• Cenovus is up more than 100%. 

Those are the kinds of gains that catch your eye. Five energy producers, all at record highs, all riding the same tailwind I just described. 

This is where a lot of investors get themselves into trouble.  

The thing about stocks that have run up that hard is that they can give a big chunk of those gains back just as quickly. An all-time high is easy to see. What’s harder to spot – and what matters more – is how much a stock tends to swing up and down. Its volatility. 

That’s the number I pay the most attention to. At TradeSmith, we measure it with a tool called the Volatility Quotient, or VQ. It tells you how much a stock typically swings over time. A high VQ means big, stomach-churning moves in both directions. A low VQ means a steadier ride. 

All five of those energy producers, for all their strength, carry high VQs – several above 25%. It’s the price of admission. To capture those gains, you have to be willing to stomach big swings along the way – the same kind of ride that hit chipmakers this summer. 

That’s where that “boring” play I mentioned up top comes in. You still get plenty of gains, and the price of admission is a lot more reasonable. 

The Toll Road of the AI Energy Boom 

Nuclear and solar will play key roles. But what all that new AI demand needs most is natural gas. And gas is useless in the ground. To reach a power plant it has to travel, sometimes hundreds of miles, through a pipeline. 

And every new gas plant built to feed a data center becomes a new customer for the company that owns the pipe.  

That company gets paid no matter which AI firm wins, which chipmaker stumbles, or which model comes out on top. It just moves the fuel and collects a fee on every unit that flows through. 

That’s why I call it a toll road. It doesn’t matter who’s driving or where they’re headed. The traffic pays the toll, either way. 

The simplest way to own the toll road is a fund called the Alerian MLP ETF (AMLP). Instead of trying to pick the one pipeline company, it holds a basket of the biggest ones in a single wrapper. One click, and you own the toll collectors. 

Here’s what I really like about it. AMLP is up about 26% over the past year – a strong run by its own standards. But its VQ is just 12%. 

Compare that to the energy producers we just looked at, several above 25%. AMLP rides the same energy tailwind, at less than half the volatility. It’s the steadier way in. 

And while you wait, it pays you income.  

AMLP currently throws off an annual income – what’s called a “distribution” – of better than 7%. That’s money you collect just for holding it, on top of any gains in the share price. 

That’s a crazy good deal, given that a 10-year Treasury note will pay you roughly 5%. You’re getting about 40% more income plus exposure to the world’s most powerful market trend. 

That doesn’t mean you should pile into AMLP with a large chunk of your portfolio. 

AMLP has had a strong run this year by its standards. So ease in – buying a fixed dollar amount on a regular schedule, an approach called dollar-cost averaging. That way you’re never betting everything on a single day’s price. 

AMLP won’t make headlines. It won’t double overnight. But it’s a steady, income-paying way to profit from the biggest technology boom of our lifetime – without the stomach-churning swings that come with chasing it the way everyone else is. 

All the best, 

Keith Kaplan 
CEO, TradeSmith