AI trading that includes the power and infrastructure to double your money, beats Nvidia

(This is CNBC’s “Power Insider” newsletter, an inside look at the investments, people and companies powering the global energy industry. Click here registration.)

What I’m hearing from insiders

Oil prices fell this week and media reports cited Trump’s comments that the Iran talks were “in their final stages.” But that’s not the real reason. The real catalyst is that ships are starting to sail through the Strait of Hormuz. Crude prices began to retreat as soon as hedge funds began to see that traffic increase, even before Trump’s headlines appeared.

Indeed, oil prices moved higher Thursday morning on negative “headlines”. Always watch the strait traffic as your guide.

Thanks, that’s not my focus today.

There is a lot going on in the energy industry beyond Iran and investors cannot be consumed by the plethora of contentious topics and miss the other money making themes that are happening.

In last week’s Power Insider, I talked about the massive power demand of AI. (I’ll have another interesting trading idea at the bottom of today’s edition.)

Well…a few days later, I was on a plane visiting two major liquefied natural gas (LNG) facilities in states near the center of the energy story: Louisiana and Texas. About 48 hours later, NextEra Energy ( NEE ) struck a deal to buy Dominion Energy ( D ) of Virginia and create America’s largest utility.

Let’s start with the Dominion Deal.

NextEra shocked the energy world by announcing a massive merger with Dominion. The stock-stock deal is worth about $67 billion, but the combined enterprise value of the new company will be about $420 billion – if the deal was approved. That’s a pretty big ‘if’ because some on Wall Street aren’t sure the deal will be approved by regulators. The Jefferies team notes that NextEra “doesn’t have a good regulatory track record” and they think the deal “could be rejected.” But Jefferies also notes that Dominion was “unpopular in Virginia” — its home state — and may be happy to have a potential buyer in NextEra.

One energy insider I spoke with called the sale “surprising” and added that it would be a complicated process to get this through multiple federal approvals. He understands NextEra’s side — the Florida company is likely looking to grow its regulated operating base and could use recent stock gains to help cover costs. But on the side of Dominion, the person inside me calls it “confused” and notes that it may come down to a board frustrated by Virginia’s policies … and possibly lured by the promise of a big payoff for its executives.

Do not sell below regulatory approval level, says Evercore ISI. Analyst Nick Amicucci highlights that this potential merger would require approval by the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC), some combination of the FTC and DOJ, and all three Dominion government commissions.

What is clear is that NextEra and Dominion would not have entered into an agreement if they and their high-priced lawyers had already considered these issues. What is unclear is the final outcome of the proposed agreement.

Hot take → If you’re looking to trade this, Jefferies says people are now likely to bid on both Duke Energy ( DUK ) and Southern Company ( SO ) as “potential safe havens” in the near term.

Hot take #2 → Deal or no deal, lawyers for all parties to this transaction will be paid. Think law school, kids!

Now, inside we look at the already large – but still growing – world of liquefied natural gas.

At LNG, we had two major discussions. In fact, three if we’re being honest (and we always are). The first two were with US Secretary of Energy Chris Wright, the third with the Governor of Louisiana.

We started the day before sunrise, and spoke with Secretary Wright at Port Arthur, Texas. The interview is also the first inside Exxon Mobil’s massive new Golden Pass export facility.

Note → QatarEnergy is the main owner of Golden Pass, and because its assets in the Middle East have been hit by Iran, security is very important. Thanks to Exxon Mobil for letting us in the gates

In the morning interview, Wright was bullish on China becoming the largest buyer of US crude oil. He also believes America will soon have more oil coming out of Alaska, something my friend and colleague Morgan Brennan talked about with ConocoPhillips CEO Ryan Lance in Alaska the same day. Friends, never let it be said that CNBC doesn’t go the distance.

Then we jumped into our rental VW Touareg and drove about 60 miles east to Cameron, Louisiana and the famous Calcasieu Pass. The Pass – or CP to insiders – is the future home of a new major Commonwealth LNG export facility. We were there during the groundbreaking, almost ten years in the making (see Inside Line below for more).

We also had the privilege of speaking with passionate Louisiana Governor Jeff Landry. Landry is bullish about the opportunities he has with natural gas, LNG and AI. The governor was proud to highlight that his regime is enabling America to top the list of LNG exporters. But our main question was straightforward: does Louisiana have enough natural gas to power both the LNG export boom again fuel AI’s electric dreams? Landry said the answer is yes.

TAKEOVER OF WALL STREET → What if oil and bond yields stay high for a long time?

Power Insider is all about power, and so is the latest stock market. Energy stocks are up an average of 35% this year, more than double Information Tech, the next best-performing group, which is up 16%. Although energy is still a small part of the overall stock market, investors in ETFs like XLE, XOP, OIH have done very well.

As oil continues to rise, the government’s borrowing costs rise. This week the 30-year US Treasury yield reached 5.17%, the highest rate since just before the 2007 subprime crisis. Oil is a big part of the inflation story, so it’s also a big part of the bond market movement. As oil rises, bond yields tend to follow.

As Bespoke Investment Research notes, the energy component of the CPI has risen to a 130% annual pace in just two months. That’s the second-worst two-month period in recent history, second only to the response after Hurricane Katrina in 2005.

So what?

The coming ‘battle’ will be between the rising risks of inflation and the cycle of high spending from AI If the hundreds of billions in money spent every few months on AI infrastructure stops – and there is no indication that it won’t – it may decrease the high energy and the risks of inflation in the market.

Goldman Sachs says income is key for the stock right now. The company notes that the recent rally “has been consistent with rising near-term earnings estimates,” which are up 8% YTD. But don’t rush yourself. Goldman also warns that there could be some medium-term weakness in the stock. The company’s data shows that since 1980 there have been 11 similar stock rallies. Of those, markets historically move higher for a short period of time and then experience “soft returns over the next few months.” In other words, it could be a flat – or less – summer.

Julien Emanuel of Evercore ISI seems more optimistic. The strategist has a year-end target of 7,750 for the S&P 500 .. but also shows a “bull case” at 9,000.” Emanuel highlights that “the pandemic has changed everything,” including how the market moves. He writes that the chances of what he calls “extreme results” are high at both ends. Emanuel recommends that investors look to the options market, advising them to buy the SPY July collar 775C/725P if “unthinkable highs” are imminent in both the bond market and oil prices.

My opinion → Here is AI trading that includes the power to double your money

Speaking of the stock market. This would be a nice (random but interesting!) RBI if we didn’t have another one for you this week.

If you’ve invested in a basket of “AI giants” — companies that spend hundreds of billions building data centers — you’ve done well. An equally weighted basket has put it up about 7% this year, but has gained a whopping 43% over the past 12 months. However, if you instead put the same money into a basket of companies building AI infrastructure and power sources, you’ve done much better.

In fact, more than a year ago you have literally twice your money.

Shares of Meta and Microsoft are actually down over the past year. Nvidia seems to be stuck after taking the lead last night.

But look at the list of infrastructure. And yes, when TeraWulf (WULF) provided the bulk of the gains, with data center builder Equinix (EQIX), engineering and energy company Eaton (ETN), and storage company Trane (TT) also doing well. Investors’ money has changed, at least for now.

See → Recently, the only thing moving in the Strait of Hormuz has been water. But there are early signs that tanker traffic may finally be starting to return. I break it down in this video:

This week’s Inside Line features Ben Dell, Managing Partner of investment firm Kimmeridge and Executive Chairman of Commonwealth LNG. Ben didn’t take the conventional route to natural gas. Graduated from St Peters College, Oxford. We asked him a few questions about his $10 billion LNG export facility.

This week’s RBI gives it to you straight: The Strait of Hormuz gets the attention, but Asia’s little-talked-about Strait of Malacca is actually a major transit point for oil and liquids. Asset analysts at JPMorgan put it well.