AI and More Fuel Kinder Morgan's Robust Backlog: A Buy?

Kinder Morgan (KMI), a leading energy infrastructure company, has seen its stock surge recently, driven by a robust project backlog and promising growth prospects. The company's focus on natural gas pipelines and its strategic position in the burgeoning artificial intelligence (AI) and data center market have investors bullish on its future. Let's delve into the factors contributing to Kinder Morgan's strong backlog and explore whether the stock is a buy.



Kinder Morgan's project backlog has grown significantly, reaching $8.1 billion by the end of the fourth quarter of 2024, a nearly 60% increase from the previous quarter. Natural gas projects account for approximately 89% of the backlog, reflecting the company's commitment to expanding its pipeline network to meet growing demand. The company expects the remaining $7.0 billion of projects in the backlog to generate an aggregate first full year Project EBITDA multiple of approximately 5.8 times, indicating a high return on investment.

The growth in AI and data centers is a significant driver of Kinder Morgan's expanding project backlog. As AI applications and data centers require vast amounts of electricity, natural gas emerges as a reliable and steady power source. Kinder Morgan is well-positioned to capitalize on this trend, as it owns or has an interest in around 79,000 miles of pipeline and 139 terminals, transporting natural gas and renewable fuels, and storing and handling commodities.



Kinder Morgan's CEO, Kim Dang, highlighted the company's expectation of substantial growth in natural gas demand between now and 2030, led by more than a doubling of demand for LNG exports and an almost 50% increase in natural gas exports to Mexico. This growth is further supported by the company's acquisition of the Outrigger Energy II acquisition, which will contribute to its earnings and growth prospects.



In addition to its strong project backlog and growth prospects, Kinder Morgan offers investors a compelling dividend yield. The company's board of directors approved a cash dividend per share of $0.2875 for the second quarter, payable on August 15, 2024, to stockholders of record as of July 31, 2024. This dividend, combined with the company's robust financial performance and healthy balance sheet, makes Kinder Morgan an attractive investment opportunity.



In conclusion, Kinder Morgan's strong project backlog, driven by AI and other technologies, positions the company for significant future earnings growth. With a high expected return on investment, a robust pipeline network, and a compelling dividend yield, Kinder Morgan appears to be a buy for investors seeking exposure to the growing AI and data center market, as well as the broader energy infrastructure sector. However, investors should remain vigilant to potential risks and challenges, such as data security, regulatory hurdles, and technological obsolescence, and monitor the company's progress closely.