Fueling the AI story
- Natural gas prices are up 26% since mid-December
- Gas stocks also up, but took “DeepSeek” hit
- New energy policies designed to support market
What do AI and natural gas have in common?
The punchline here is that there’s no punchline. Recently, future demand for natural gas has been, in part, tied to the larger demand for energy to power massive AI datacenters.
That’s why shares of companies like natural gas supplier EQT (EQT) tumbled on January 27, when news of China’s DeepSeek platform appeared to offer the possibility of more-efficient—and thus, less energy-intensive—AI:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
So, along with the sell-off in AI chip giant NVIDIA (NVDA) and virtually every other AI-related tech stock on that day, EQT fell nearly 10%. But as of Tuesday, the stock was back where it was before the news broke, mirroring a rebound in many AI-centric stocks as market participants began to take a more objective look at the potential “disruption” posed by DeepSeek.
Meanwhile, as Morgan Stanley & Co. strategists recently explained, on his first day in office President Trump declared a “national energy emergency” and laid out a sweeping plan to maximize oil and natural gas production. The analysts believe the White House’s initiative could have a significant impact on the future of energy (one of Morgan Stanley's four key themes for 2025), with the two biggest beneficiaries being natural gas and nuclear power.1
Both natural gas and WTI crude oil hit relative highs in the first half of January before pulling back. But the two markets began to diverge late last month, with March natural gas futures (HGH5) turning sharply higher while March WTI oil futures (CLH5) continued to slump before bouncing this week. As of Tuesday, natural gas had gained more than four times as much as crude oil since mid-December:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)
One of the interesting twists in the AI story since the DeepSeek announcement is that, even if the platform heralds the arrival of less energy-intensive AI in general, many analysts believe this could translate into greater adoption and application of the technology—and thus, robust energy demand.
In other words, if more efficient AI results in much more AI overall, the net result will still be heavy demand for energy, with natural gas a potentially key supplier. And that may be why the Morgan Stanley & Co. strategists also suggested that pullbacks in natural gas stocks may, depending on circumstances, present longer-term buying opportunities for bullish traders.
Note: EQT is currently scheduled to release earnings on February 18.
Today’s numbers include (all times ET): mortgage applications (7 a.m.), Consumer Price Index (8:30 a.m.), Jerome Powell congressional testimony (10:00 a.m.), EIA Petroleum Status Report (10:30 a.m.).
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1 MorganStanley.com. Trump 2.0 and the Future of Energy. 2/4/25.