Electricity-hungry data centers play right into midstream energy operator Williams' wheelhouse, making its stock a buy. By Teresa Rivas
In 2006, Alaska Sen. Ted Stevens famously oversimplified the internet as "a series of tubes." That may have been a gross misunderstanding of what was cutting-edge technology at the time, but today a series of tubes, i.e., pipelines, are helping to power the latest advancements -- to the benefit of their stocks.
Midstream operator Williams Cos., an energy middleman whose pipelines act as toll roads, handles roughly one-third of all the natural gas in the U.S. every day, connecting it from where it's produced to where it's used. It's one of the latest beneficiaries of artificial intelligence, as the company helps to provide some of the juice that increasingly electricity-hungry data centers require. That demand, along with the broader growth in electricity needs in the U.S., means the company has a plausible line of sight to robust profits for years to come.
"Williams has articulated an expectation for potentially 10% earnings growth through the end of the decade and even beyond; eight to 10 years is sort of the time frame," says Ben Cook, portfolio manager of the Hennessy Midstream fund, which owns the shares. "That's not hard and fast guidance, but a company's ability to project double-digit earnings growth into the end of the decade is pretty unique."
Most analysts are on board, too. The consensus calls for Williams' earnings per share to climb 12.5% this year to a record $2.36, followed by more than 7% next year. Likewise, Wall Street sees gross margins ballooning to over 80% for 2026, and then remaining in the high-70% range.
Not many companies can do what Williams does. It has created a "durable competitive moat rooted in regulatory and permitting complexity that is difficult to replicate," says Ian Owens, associate portfolio manager at Bahl & Gaynor, which owns the shares. He cites assets like the Transcontinental Gas Pipe Line, which spans more than 10,000 miles over multiple states. "Fixed-fee contracts with investment-grade counterparties provide cash flow predictability, enabling the company to fund both shareholder returns and growth capex from contracted revenues, " Owens says.
Fixed-fee is another way of saying Williams gets paid for the use of its pipes whether or not natural gas is flowing through them. That means that unlike other energy companies, it's less susceptible to commodity price swings, and it knows it has enough money coming in to cover necessary investments.
Some of those are around AI. The company has "a differentiated integrated power platform," as Owens puts it, "which has positioned the company as the first mover" in on-site energy generation -- sometimes called "behind-the-meter" -- solutions for data centers. Big Tech companies like Facebook parent Meta Platforms, which works with Williams, are more than happy to pay for systems that allow them to bypass the grid and avoid problems like blackouts. The company's data-center contracts can be a decade or longer in duration, adding some certainty to Williams' income.
This week a group led by Blackstone said it would invest $5.34 billion in Williams to fund five major power-infrastructure projects, in exchange for a 49% noncontrolling equity interest in the projects. Overall, the company has a multibillion-dollar backlog spanning more than a dozen projects.
Cook notes that Williams' triple-B investment-grade rating gives him confidence that its balance sheet and steady cash flows are adequate to cover the investments it's making in the business. Nor, he says, do you have to be an AI believer, since export capacity for liquefied natural gas (LNG) is expected to roughly double in less than 10 years. (That growth comes after the U.S. went from almost zero LNG exports in 2016 to becoming the world's largest supplier.)
Of course none of this has gone unnoticed, and Williams shares have gained about 25% year to date, easily ahead of the broader market and even the tech darlings tracked by the Roundhill Magnificent Seven ETF, which has underperformed since the start of 2026. The stock trades at a little under 30 times next year's earnings.
Still, Williams can boast "sector-leading growth expectations" with minimal risk in terms of natural gas's price -- steady earnings power that many investors feel is worth paying up for, according to Owens. The stock has been a consistent winner as well, soaring some 170% over the past five years.
The company may have another catalyst if it acquires integrated natural-gas player Momentum Midstream from private-equity firm EnCap Flatrock Midstream. The "industrial logic for the acquisition is there as Haynesville represents a significant source of U.S. natural gas growth," notes Truist analyst Gabe Daoud, who says the shares should trade to $84, corresponding to upside of about 12% from current prices, should the deal go through -- depending on the financing details. Williams pays a dividend of 52 cents per share, or about 2.8%.
If investors think Williams has overpaid for any final deal, of course, they could sour on the shares. Likewise, although the stock is more insulated from natural-gas prices than other players, it's not totally immune to them -- and the same is true when it comes to the AI trade. Then there's the fact that its valuation requires strong and consistent execution over time.
Yet Williams' executives have been good stewards of capital in the past, as the company's current balance sheet and capital position show. If the stock does sell off on debt-related concerns around a deal, the weakness would likely be temporary. And the long-term bull case for natural gas -- for both regular power generation needs and AI projects -- seems supportive of the commodity's price.
"It's a pretty straightforward story," says Cook. "It's one of the few companies with an irreplicable asset footprint in the U.S., a management team we think is navigating the current environment pretty well...and a strong balance sheet. That combination makes for an attractive investment."
-- Join us for the next live Q&A: Hear from our stockpickers and technical
analyst as we discuss the latest market developments -- and take your
questions. Register here
-- Share your questions and thoughts in the "Conversation" section below to
engage directly with the author and our community
-- Receive alerts about more content from this author by clicking "Follow"
next to the author byline at top
To subscribe to Barron's, visit http://www.barrons.com/subscribe
(END) Dow Jones Newswires
July 17, 2026 21:31 ET (01:31 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments