There has been a lot of discussion on Wall Street about the growth prospects of energy-related stocks, especially as they relate to the surging demand from AI data centers. According to Goldman Sachs, U.S. electricity demand is set to increase from about flat over the past decade to a 2.4% annualized rate through 2030, in large part thanks to AI data centers.
That's actually a huge increase in power demand, which is sparking a debate among investors as to whether nuclear energy or natural gas will help as a baseload fuel to fill the void as renewable power sources ramp.
But no matter whether nuclear, natural gas, or even hydrogen power wins out, this industrial equipment stock is primed to benefit.
Chart Industries supplies the goods
Chart Industries (GTLS -1.39%) makes a variety of equipment that cools, heats, or purifies most any type of molecule. Its equipment includes cryogenic tanks, heat exchangers, industrial fans, circulators, turbines, and much more.
Already a leader in the traditional energy and liquefied natural gas (LNG) equipment markets, Chart greatly expanded its portfolio with the 2022 acquisition of Howden.
The good news is that Chart's expanding portfolio and the addition of Howden enabled it to expand into virtually any end-market that produces energy. This includes liquefied natural gas, the growing hydrogen market, and yes, nuclear power, among others. Even in the field of renewables, the Howden acquisition has given Chart exposure to clean mining applications, and therefore exposure to the lithium and copper markets, which are used in solar and electrification.
Recent earnings reveal big wins across the space
Chart just reported third quarter earnings that missed expectations, but that was largely due to the timing of large, high-margin projects. Meanwhile, incoming orders grew and margins expanded. With the stock trading at a bargain price, investors were able to look past the headline "miss" and shares shot up in the aftermath.
Investors may have also been encouraged in the company's early 2025 guidance, which anticipates about 12% revenue growth and a whopping 39% earnings-per-share growth over the company's 2024 outlook. That double-digit growth seems to indicate the delayed 2024 orders will be fulfilled next year.
Many energy sources come back to Chart
During the earnings call, management announced several orders from nuclear customers, including EDF of France. CEO Jill Evanko noted the company counts the, "new leader in the space" as a customer for industrial fans, while Chart also serves newer small modular reactor (SMR) companies with gas circulators, fans, turbines and air coolers.
Nuclear stocks have been all the rage this year as demand suddenly surged, with nuclear stocks like Vistra Corp. actually becoming the biggest winner in the S&P 500 this year, and Microsoft making a 20-year deal to reopen the Three Mile Island nuclear facility run by Constellation Energy.
However, nuclear stocks all fell on Friday, after regulators rejected a deal between Amazon and nuclear power company Talen Energy, as being too risky for Pennsylvania's grid. So, the "inevitable" demand for nuclear may not go as smoothly as some might think.
Image source: Getty Images.
If grid reliability or environmental concerns around nuclear waste turn AI data center operators away from nuclear, they will likely look to use more natural gas. But that would be fine for Chart, as LNG has traditionally been Chart's core business.
While it's not a producer, Chart has a huge business in LNG import and export terminals. On its earnings release, Chart announced robust orders for its new IPSMR LNG technology, which was just selected by ExxonMobil, Woodside Energy, and Viability Gap in Tanzania for large LNG projects.
Additionally, some think hydrogen is the future, as the fuel produces no carbon when combusted. Last year, the U.S. unveiled seven hydrogen hubs across the country as part of the Bipartisan Infrastructure Act of 2021. While those projects have recently been funded and are just now starting. Chart is already booking hydrogen deals, with recent big orders in Egypt and Europe last quarter.
Chart is getting into the data center itself, too
Besides supplying whichever fuel may be needed to power AI data centers, Chart has more recently won orders for equipment within data centers themselves. AI servers are generating more and more heat, and this needs to be dealt with. On the call, Evanko noted that Chart had received its second data center order in the third quarter, and got its third data center order for air-cooled heat exchangers in the fourth quarter, too.
AI growth for a value price
Chart only trades around 10 times its recent 2025 guidance. While it's true the company took on significant debt to purchase Howden, it has begun to chip away at that debt. After investing in the Howden integration, free cash flow surged to $175 million last quarter on the way to $400 million this year, with 2025 guidance for between $550 million and $600 million. That billion dollars or so would make a sizable dent in Chart's $3.9 billion in debt.
With a number of data center and energy production growth opportunities, investors shouldn't ignore Chart. For more those interested in learnings more, the company will hold a capital markets day for investors on Nov. 12.
