Chevron secured a major long-term power supply agreement to deliver Permian basin natural gas-generated electricity to Microsoft AI data center deployments.
Chevron (CVX) announced Monday that it has reached an agreement with Microsoft (MSFT) to supply its Project Kilby data center with natural gas for 20 years. As part of the deal, Chevron's partner GE Vernova (GEV) will work with construction and engineering-equipment company Caterpillar (CAT) to supply specialized natural-gas turbines to power the Texas-based facility.
Project Kilby is expected to consume about 2.7 gigawatts (GW) of power—enough to fuel more than 2 million homes, according to CNBC. Construction has not yet started, with the data center expected to receive power in 2028.
Chevron's large footprint in the Permian Basin in West Texas and southeastern New Mexico positions it to quickly and efficiently supply power to Texas data centers like Project Kilby. "AI is reshaping the global economy, and abundant, affordable, reliable energy is essential to fueling that transformation," says Jeff Gustavson, Chevron's president of New Energies. "Chevron is uniquely positioned to deliver power to customers with certainty, speed and at a competitive cost, leveraging Permian natural gas and our proven execution capabilities."
The news sent Chevron's stock higher while the broader market fell.
Oil prices have spiked following the conflict in Iran, then retreated from those highs. Higher energy prices generally mean thicker margins for energy companies. But energy prices are not the only driver for this sector. Artificial intelligence (AI) is creating major demand for energy as a powerful tailwind.
AI models run complex calculations that require more energy to execute quickly than traditional computing. AI data centers "devour" power. Currently, data centers account for somewhere between 1% and 3% of global energy usage—but that's just the starting point.
According to Deloitte analysis, the power demand from AI data centers alone could increase more than 30 times in the U.S., rising from 4 GW in 2024 to 123 GW by 2035. That's enough to electrify nearly every household on the East Coast, or roughly 100 million homes.
AI's power appetite is ahead of schedule. When OpenAI's ChatGPT launched the AI boom in November 2022, data centers made up about 4% of total power demand in the U.S. Since then, their energy share has increased substantially to 7%, according to analysts at Goldman Sachs.
At the end of 2024, the Department of Energy projected that data centers could account for anywhere from 6.7% to 12% of total power demand by 2028. As of now, only about a year later, U.S. data centers are already in that range—two years sooner than expected.
AI is placing extreme stress on the U.S. power grid. Yet this hasn't stopped AI companies from increasing their AI spending. Big Tech companies are turning directly to utilities and energy companies to meet their AI-power needs.
This increased demand is prompting utility companies to consolidate. Last month, NextEra Energy (NEE) and Dominion Energy (D)—two of the largest utilities in the U.S.—announced they were merging in the largest-ever utility deal. A combined company will have a larger footprint and more assets, giving it a better chance of meeting growing demand for power from AI.
Chevron is one of the largest oil-and-gas exploration-and-production companies in the energy sector. It operates both as an "upstream" (production) and "downstream" (refinery) company with a huge footprint in U.S. oilfields.
Does this news make Chevron a good play for AI infrastructure investors? Using the Stansberry Score system, Chevron receives an overall grade of "B" and a total score of 76 out of 100—good enough to rank it 602nd out of more than 4,600 stocks in the system's coverage.
Chevron earns an "A" grade for both its Financial and Capital Efficiency scores, indicating a solid income and balance sheet with plenty of cash flow relative to equipment spending. The only weakness in Chevron's score is its Valuation, where it received a "C" grade. At a price-to-earnings (P/E) ratio of 30, Chevron trades at a premium to both the S&P 500 (with a P/E ratio of around 27) and the State Street Energy Select Sector SPDR Fund (with a P/E ratio hovering around 20).
Chevron does trade at a premium to both the broader market and the energy sector. However, strong businesses like this one—as evidenced by its other "A" grades—rarely go on sale. The Stansberry system still considers Chevron a solid long-term investment despite its rich valuation. As of June 24, the stock is down more than 17% from its all-time high set in March, which could provide an attractive entry point for investors looking to gain exposure to a major U.S. energy company benefiting from the AI build-out.
Partnerships matching energy-hungry tech giants with companies ready to supply power are expected to continue for years. Hyperscalers have committed more than $700 billion to the AI build-out in 2026 alone. They must continue investing heavily in AI to ensure that their massive prior investments don't go to waste, and they'll need energy to power their new data centers.
However, this latest announcement—large enough to power more than 2 million homes—is just a drop in the bucket. Another data center in the works could be three times as large.
The largest private AI energy project in the world is located five hours from the nearest major airport, surrounded by 7,500 acres of Texas Panhandle scrubland. When construction is finished, the site will generate 17 gigawatts of electricity—enough to light up more than 8 million homes.
What's particularly notable about this trend is the on-site, natural gas power generation built around specialized turbines—a concept referred to as "Dark Energy." That's exactly what the Chevron and Microsoft deal represents: natural gas provided on-site and bypassing the broader energy grid. And it won't be the last such arrangement.
While this trend is significant, the biggest winners may not be household names like Chevron. A small group of stocks is expected to soar as the Dark Energy trend gains momentum.