Shares of Fortis (TSX: FTS) have been stealthily moving higher so far this year, now up close to 17%, outpacing the broad markets with far less choppiness. With a low beta of 0.43, perhaps shares of Fortis are one of the safest ways to play the AI boom without completely sitting on the sidelines.
Indeed, the rise of all of these data centres on both sides of the border is raising questions about whether the grid is ready for what’s to come.
More power-hungry data centres mean more energy will need to go around, preferably without driving up prices for those who live in the vicinity. In my opinion, it feels like there’s no way that the grid is ready for the sheer scale of AI buildout that’s underway.
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Those huge gigawatt data centres are coming
While power transmission and energy infrastructure might be boring, it’s a real chokepoint when demand spikes due to some revolutionary trend.
Sure, some of those behind ambitious data centre projects (can you believe we’re talking about one-gigawatt data centres now?) just say they’ll bring their own power, water, and all the sort so that they don’t stress out the grid or drive up the price of energy for households. That kind of talk is easier said than done, in my view, especially in the earlier days.
For now, I continue to view Fortis as a smart play on a technological shift that’s facing a bit of a reckoning right now (have you seen the magnitude of volatility hitting AI chip stocks lately?). With a robust business in ITC Holdings south of the border, Fortis is very much feeling the tailwinds that new data centre projects are generating.
Dividend-growth surprises on the horizon?
In my view, ITC could be the source of considerable dividend growth surprises, even for a name like Fortis, which isn’t exactly a surprising performer, given its high earnings visibility made possible by its highly regulated nature. As the U.S. Midwest, in particular, really starts going with AI data centres, the region is going to need the transmission companies to get building.
In any case, I think that Wells Fargo, a U.S. bank, is 100% right on the money when it outlines the favourable position that utilities find themselves in.
And, in my view, that includes Canadian utilities like Fortis, which might be entering an era where it’s the growthiest it’s been in some number of years. Perhaps skewing more towards the high end of the growth range could be in the cards in the coming decade.
Like it or not, the market might be rotating back to boring. And with Fortis, you can do that: get paid a nice dividend, with predictable growth, and without giving up on the AI trade.
It’s time to treat Fortis’s AI tailwinds seriously
Without proper energy infrastructure, I think the AI boom will be held back. I don’t think firms pushing the revolution are going to be fine with that, especially as they throw money at the bottlenecks holding back the revolutionary buildout.
As a boring name, like Fortis, starts to heat up further, shares of FTS may very well find themselves sporting a price-to-earnings multiple that’s close to 30.0 times while the dividend yield looks to drop below 3.1%.
Either way, I think the name is worth buying on strength as it looks to start trading more like a growth stock and less like a Steady Eddie dividend payer and bond proxy for the more conservative investors out there.
