AI's Biggest Bottleneck Isn't What You Think

Editor's note: Every Friday, we showcase a featured topic from our YouTube show, Altimetry Authority.

This week, we tackle themes from our upcoming episode where we interview Dave Daglio, former chief investment officer at BNY Mellon. That includes one big problem he sees forming in the AI space... and how it's creating a massive opportunity that most investors are missing.

Read on below...

All eyes are on one particular part of the AI market...

Chip manufacturers and IT companies.

Nvidia's (NVDA) $3 trillion valuation... Dell Technologies' (DELL) surge in AI-server demand... The nationwide race to build massive data centers.

This is where most investors are paying attention – and for good reason.

It's clear that data centers and chipmakers play a vital role in the AI race. Without them, AI innovation would simply come to a halt. So it's important that we see continued progress in chip manufacturing and data-center construction.

However, Dave Daglio, former chief investment officer of BNY Mellon and one of Fortune's top 20 investors, sees a different constraint forming...

See, we sat down with Dave to discuss a variety of topics for this week's Altimetry Authority. And one of his arguments is that power – not hardware – is the true choke point for AI.

Importantly, it's creating a rare, overlooked opportunity in an unlikely corner of the market... natural gas.

Despite some concerns about the macroeconomic environment, Dave called U.S. natural gas his "highest-conviction asymmetric bet."

Today, we'll reveal why natural gas may be the most underappreciated winner of the AI boom... and how that view is already reshaping institutional positioning.

America is sitting on a natural gas gold mine...

We have the world's cheapest production costs and more accessible reserves than any other developed nation.

In theory, that should be bullish for producers... Yet over the past year, natural gas prices have been shockingly weak.

It all comes down to something called "associated gas."

This is the natural gas that comes out of the ground when drillers are extracting oil, especially in prolific oil and gas regions like the Permian Basin.

While not literally "free" to produce, it's often treated as an afterthought and a byproduct of oil production.

As oil prices soared in 2022, due to tight supplies and the Russia-Ukraine war, Permian drilling surged... and so did the natural gas supply – even though no one was targeting it directly.

That supply glut has pushed U.S. natural gas prices below $3 per million British thermal units ("MMBtu") for much of the past year. (By comparison, the long-term average for natural gas prices is around $4 per MMBtu.)

However, this dynamic is now reversing. Oil prices have cooled from around $90 per barrel to around $60 per barrel today. Permian drilling is slowing. And the supply of free natural gas is drying up fast.

Meanwhile, a new wave of natural gas demand is looming... and it has nothing to do with home heating or industrial use.

Natural gas is the key to continued AI innovation...

AI data centers consume up to 50 times more energy per square foot than traditional office space. Just one large AI campus can draw as much power as a small city.

That load is straining local grids across the country and forcing developers to find alternative fuel sources – and fast.

That's where natural gas enters the picture.

It's still the most flexible, scalable, and cost-effective "bridge fuel" for reliable electricity. And unlike nuclear or solar power, new natural gas capacity can be added in months instead of years.

The export angle is even more compelling...

As liquefied natural gas ("LNG") terminals ramp up on the Gulf Coast, U.S. gas is being shipped abroad at two to three times domestic prices.

Even a partial convergence between U.S. and global natural gas prices could triple margins for producers almost overnight.

And the market is finally starting to notice... Natural gas futures point to higher prices on the horizon. They expect natural gas prices to surpass $3.50 per MMBtu by July and $4.00 per MMBtu by November.

That tells us institutional investors are positioning themselves to take advantage.

AI may fuel the next natural gas supercycle...

AI chipmaking and infrastructure companies have already surged. The obvious trades are crowded. And in many cases, they're priced for perfection.

Yet natural gas – the enabler of the entire AI ecosystem – has been left behind.

Without reliable, cheap power, AI infrastructure can't scale. And right now, the only energy source that can fill that gap quickly is natural gas.

For investors who missed the early AI boom, this is a chance to own an overlooked part of the foundation.

While everyone else chases the more popular AI plays, the smart money is flowing into natural gas pipelines, processors, and producers. The next energy bull market may already be underway.

Regards,

Joel Litman
May 30, 2025

P.S. We dive deeper into Dave's personal investing philosophy and the biggest mistakes he sees investors make in the upcoming episode of Altimetry Authority, which airs at 11 a.m. Eastern time today. Check it out on our YouTube channel right here... and be sure to click the "Subscribe" button.