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The rapid expansion of artificial intelligence (AI) technologies is reshaping numerous industries, and one of the most significant impacts is being felt in the data center sector. As AI applications proliferate, the demand for data processing and storage capabilities is skyrocketing.

This year, the global data center market is experiencing unprecedented growth, driven by the need for high-performance computing to support AI workloads. According to Goldman Sachs (GS), data center power demand is expected to grow by 160% by 2030, driven largely by AI's increasing computational requirements. This ramp is largely being driven by the increasing rack density in data centers, which is projected to rise from 8.5 kW per rack in 2023 to 12 kW per rack in 2024.

Naturally, this spike in data center activity is leading to a corresponding increase in energy consumption. AI-powered data centers require vast amounts of electricity to operate, and this has significant implications for the energy sector.

Natural gas (NGQ24), in particular, is poised to benefit from this trend, as utilities turn to this “bridge” commodity to meet the surging electricity demand. Experts predict that AI could drive a natural gas boom, providing a reliable and scalable energy source for these power-hungry facilities. In particular, Wells Fargo expects midstream natural gas companies to benefit from the booming growth in the energy infrastructure sector.

That makes the Alerian MLP ETF (AMLP) a top investment choice to consider right now. With $8.96 billion in assets under management (AUM), AMLP focuses on high-yield midstream Master Limited Partnerships (MLPs) that are integral to the transportation, storage, and processing of energy commodities. That leaves AMLP well-positioned to benefit from the AI-driven energy demand, making it a compelling option for investors seeking exposure to this transformative trend.

AMLP's Strong Performance & Fat Yield

The Alerian MLP ETF (AMLP) tracks the Alerian MLP Infrastructure Index, focusing on MLPs that generate most of their cash flow from midstream activities like energy commodity transportation, storage, and processing.

AMLP has been cruising higher lately, outperforming some other energy investments in the process. The exchange-traded fund (ETF) has gained 20.2% over the last 52 weeks, and 13.9% on a YTD basis.

The fund's steady rise reflects the growing investor appetite for energy infrastructure and midstream companies, particularly as the AI-driven data center trend gains momentum.

But AMLP isn't just about price appreciation; the MLP-focused fund is also a darling among income-focused investors, offering a juicy forward dividend yield of 7.31%. This yield significantly outpaces many broad market indexes, making it an attractive option for those looking to boost their portfolio income.

The fund distributes dividends quarterly, with the most recent payment of $0.94 per share hitting investors' accounts on May 14, 2024. But unlike individual MLP investments, AMLP doesn't require investors to deal with the dreaded K-1 tax forms.

Going Under the Hood on AMLP

With AUM of nearly $9B, AMLP is one of the largest ETFs focused on the energy infrastructure sector. This substantial AUM speaks volumes about investor confidence in the fund and its strategy. While its expense ratio of 0.85% might seem a bit steep compared to broad market ETFs, it's actually par for the course when it comes to specialized sector funds, especially those dealing with MLPs and their complex tax structures.

The fund's portfolio is laser-focused on the energy infrastructure sector, with its top five holdings accounting for over 63% of its total assets. These heavy hitters include familiar names like Plains All American Pipeline, L.P. (PAA) at 12.96%; Energy Transfer LP (ET) at 12.84%; Western Midstream Partners LP (WES) at 12.55%; MPLX LP (MPLX) at 12.54%; and Enterprise Products Partners L.P. (EPD) at 12.39%.

This specialized concentration allows investors to gain significant exposure to key players in the midstream energy space, which are well-positioned to benefit from the increasing energy demands of AI-powered data centers. And with average daily share volume of over a million, AMLP offers healthy liquidity for investors.

Catalysts for Growth and Analyst Insights

With approximately 43% of U.S. electricity originating from natural gas, Wells Fargo notes that the development of energy-intensive data centers is still in its early stages, presenting a significant growth opportunity for natural gas companies. The bank's analysts believe that the U.S. has ample natural gas production capacity and reserves to meet this escalating demand, but the challenge lies in making sure the infrastructure is sufficient to effectively match supply with growing needs over time - creating opportunity squarely in the midstream.

Recent analyst ratings and price targets for AMLP's top holdings reflect this optimistic outlook. For instance, Enterprise Products Partners is a “Strong Buy” overall, while Energy Transfer was just named a top pick at Mizuho for its data center exposure. Additionally, during Q1 earnings season, many MLPs beat analysts' expectations and raised their guidance, with WES and MPLX among the notable examples. WES also raised its distribution by 52%, signaling confidence in its future cash flows.

Institutional interest in AMLP has also been on the rise. Diversify Advisory Services LLC acquired a new stake in AMLP during the first quarter, purchasing 5,334 shares valued at approximately $253,000.

Conclusion

The Alerian MLP ETF (AMLP) stands out as a top pick for investors looking to capitalize on the AI-driven data center trend. With its strong performance, attractive dividend yields, and strategic focus on midstream MLPs, AMLP is well-positioned to benefit from the growing energy demands of AI-powered data centers. If you're looking to ride the AI wave while enjoying a steady stream of passive income, AMLP is definitely an ETF worth considering.

On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.