Investors seeking to benefit from the artificial intelligence (AI) boom should look beyond the suppliers of tech gear. Companies in other industries are set to benefit from the expansion of AI infrastructure and the adoption of customized AI programming.
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TC Energy
TC Energy (TSX: TRP) might not be the first name that comes to mind when investors think about AI. However, the energy infrastructure giant actually mentioned AI growth as an area of opportunity when it released the second-quarter (Q2) 2024 financial results.
Investors are already starting to see the potential. TC Energy’s share price is up 12% in the past month, currently trading near $60 per share.
TC Energy operates more than 90,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and Mexico. AI data centre firms are planning to build on-site power-generation facilities to ensure the operations have steady power supplies. One popular option is to use natural gas to generate electricity. The fuel emits less carbon dioxide when burned than oil or coal, and natural gas is both abundant and relatively cheap in North America. In the coming years, hydrogen could be mixed with natural gas on a large scale to reduce the environmental impact.
There are currently about 300 AI data centres planned or under construction in the United States. TC Energy says its gas infrastructure is within 24 km of 60% of these locations.
Cuts to interest rates will reduce borrowing costs for TC Energy as it moves forward on the large capital program. The company plans to invest $6 billion to $7 billion per year over the medium term on growth projects. As new assets go into service investors should see cash flow expand enough to support steady dividend increases. TC Energy has raised the dividend in each of the past 24 years.
The stock was as high as $74 in 2022, so there is decent upside potential. Investors who buy TRP at the current level can get a 6.4% dividend yield.
Royal Bank
Royal Bank (TSX: RY) is not only Canada’s largest bank with its current market capitalization above $200 billion, it is also among the biggest globally based on that metric. This gives it the financial firepower to invest in tech solutions to make the bank more efficient and improve return on equity.
Royal Bank and its peers can use customized AI programming to analyze the vast amounts of internal customer data to speed up processing times for loans and insurance applications while identifying client-specific opportunities for selling various financial products, whether it be for wealth management on the retail side or for services like cash management for commercial customers. AI adoption by banks could transform their businesses in the coming years and markets might not yet realize the potential benefits.
Royal Bank trades near its 12-month high at a time when many banks are struggling to get back to where they were in early 2022. The stock isn’t cheap, but you get good quality and a reasonable 3.8% dividend yield at the current share price near $150.
The bottom line on AI stocks
TC Energy and Royal Bank are good examples of non-tech stocks that should benefit from the AI boom. If you have some cash to put to work in a buy-and-hold portfolio, these stocks deserve to be on your radar.
