Barrons -- DeepSeek Hit Kinder Morgan . . . / It’s Time to Buy .....................................................
Barrons
Jan. 28, 2025
3:17 pm ET
DeepSeek Hit Kinder Morgan, Williams, and Other Pipeline Stocks Hard.
It’s Time to Buy.
CFRA analyst Stewart Glickman said losses in response to news about the Chinese chatbot DeepSeek were an overreaction.
By Ian Salisbury
Storage tanks and pipelines at the Kinder Morgan liquid fuel terminal in Carteret, N.J.
Pipeline stocks have been slammed by fears surrounding China’s new DeepSeek AI effort. Investors -- especially those on the hunt for attractive yields -- should see it as a buying opportunity.
On Monday, claims that Chinese company DeepSeek has built a competitive artificial intelligence model, without relying heavily on Nvidia ’s costly, power-hungry computer chips like previous U.S. versions do, sent U.S. tech stocks reeling.
Pipeline stocks, which had been riding high on hope that AI adoption would spur power demand, slid too. The Global X MLP & Energy Infrastructure ETF, which holds many of these companies, fell 4.4%.
“Nat gas-focused midstream names like KMI and WMB got spanked yesterday,” said CFRA analyst Stewart Glickman, referring to tickers for Kinder Morgan , which fell 9.3%, and Williams Cos., down 8.4%.
He called the move “a bit of an overreaction,” noting the news isn’t likely to affect 2025 or 2026 earnings because the AI data centers the pipelines are expected to power are still being built. Meanwhile, the AI concerns do nothing to alter demand for natural gas to make products like plastics and fertilizers, which he expects to be strong.
Indeed, it is far from clear DeepSeek will end up curtailing electricity demand even in the long run. While the DeepSeek does appear to run on chips that are cheaper and use less power than Nvidia’s most advanced models, that could mean it merely ends up encouraging faster adoption of AI by a wider circle of users, ultimately spurring additional power demand after all.
“Any increase in efficiency will likely drive down AI product prices and increase adoption of AI, wrote UBS analyst Manav Gupta in a note Monday.
Outside of AI, natural gas pipeline stocks are poised for another big tailwind: President Donald Trump’s stance on energy. The industry scored an early victory Friday when the Federal Energy Regulatory Commission ended a Biden-era effort to weigh the climate effects of new natural-gas infrastructure projects.
“The Trump administration wasted no time,” wrote Citigroup analyst Spiro Dounis last week about the flurry of activity in Washington following Trump’s inauguration.
The upshot? Stocks like Kinder Morgan and Williams Cos, both of which Barron’s recommended in our Jan. 3 cover story on 2025 income ideas, still look like buys.
Kinder Morgan, which yields 4.4%, trades at less than 21 times the earnings per share expected for 2025, compared with 22 times for the S&P 500. It looks cheap considering analysts expect 15% profit growth in 2025. Williams Cos., with a 3.5% yield, trades at 26 times 2025 earnings, while Wall Street is forecasting 2025 profit growth of about 9%.
The pair are among the handful of pipeline stocks most likely to benefit from energy demand from new data centers, noted UBS in its note Monday. That means they should be among those with the most upside when the DeepSeek news settles in, and the market recovers its composure.
Write to Ian Salisbury at ian.salisbury@barrons.com
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