The AI Data Center Boom Is Making Farmers Rich: Why Energy is the Real Winner

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Not long ago, Marilee and David Kiliti struggled to make a living raising hogs.

On top of the headaches and financial woes that come from running their 89-acre Luzerne County, Pennsylvania farm, local opportunities to supplement their income are scarce.

“You don’t want to work in this area,” David Kiliti told the Wall Street Journal. “If you drive an hour, or an hour and a half, then you can make some decent money.”

So, Marilee worked as a forklift driver, while her husband took whatever construction work he could find.

The Kilitis once made a desperate attempt to improve their fortunes by building a new hog barn. With no savings to draw on, they cashed out a life-insurance policy and went deep into debt.

But the neighbors didn’t want a larger hog barn nearby and fought the Kilitis’ plans to expand it.

“It was horrible,” Marilee said. She was afraid to go into the nearby town of Berwick because “you’d get stared at.”

The Hog Farmers Were Sitting on a Fortune and Didn’t Even Know It

For the Kilitis, the hog episode is long forgotten now. The couple didn’t realize they were sitting on a massive opportunity. Then land developers drove to their farm and told them their property was worth more than $20 million.

They didn’t believe it at first, because Luzerne County is one of only a few counties in Pennsylvania without large amounts of natural gas beneath it. The gas-rich Marcellus Shale formation runs directly under the county, but there’s not enough gas in that part of it to make drilling viable. So, the shale boom passed them by. Others in the area had gotten lowball offers on their land before, so they were skeptical.

The skepticism evaporated when they became one of 96 families who sold data-center developer QTS a total of 1,700 acres for $586 million.

The Kilitis’ share: $22 million. They easily paid off their barn debt. The couple is now building their dream house next to a picturesque lake. One daughter purchased a local brewery. Another is starting a cancer-research foundation.

Two years ago, many in Luzerne County didn’t know what a data center was. Now, the county is filled with new millionaires who recently sold their prime data-center development land in the fast-growing AI build-out.

Though the Kilitis’ property has no natural gas beneath it, it’s surrounded by land rich in natural gas, a key fuel for powering AI data centers.

The AI Land Boom’s Key Secret

It’s not just Pennsylvania, either. The same thing is happening in Texas.

The largest state in the Lower 48 already has more than 300 data centers, with many new ones on the way.

And just like Pennsylvania, Texas has an abundance of agricultural and cattle-ranching land that is now exploding in value due to the data-center boom. A group of families received an offer of $80 million for plots totaling 800 acres – 14 times the previous appraisal value.  Meanwhile, an 87-acre plot recently sold for $10 million, according to 404 Media.

In both states, there’s plenty of land near major population centers, and it’s also surrounded by large natural gas reserves.

Land is clearly an important resource for data-center developers. But energy is the most crucial resource that they are seeking. Without it, a data center is little more than a computer warehouse.

I’ve been working on finding the best ways to exploit the data-center build-out since last fall. Energy is by far the best one I’ve found yet. I’m recommending my readers buy two more AI-adjacent energy stocks in the July issue of The Ferris Report…

In that report, I show readers why data-center developers are favoring natural gas for on-site electricity generation – and how dozens of AI developers are already making billion-dollar investments to secure gas supplies for data centers. One natural gas provider has even begun spending billions of dollars to build new power plants – selling both the power and the fuel.

The AI energy trade has already been working. I’m just telling readers the best way to get on board right now. Both the stocks I’ve found to exploit the trend have recently outperformed the big AI names listed above. You’d have done much better this year if you’d seen last December – as Ferris Report readers did – that AI is more of an energy play than a technology play.

Back then, I told readers about the unbreakable connection between AI data centers and another critical energy commodity: diesel fuel.

There are more than 5,400 data centers in this country. Roughly 95% of them use diesel generators for backup power.

And as hyperscalers like Alphabet (GOOG), Microsoft (MSFT), Meta Platforms (META), and more expand their AI programs, more data centers are on the way. That means a lot more diesel generators, too…

Trucks, construction, farming, and mining all stop at the end of each day. They also… adjust their business activity and diesel consumption based on industry and economic cycles.

Data centers operate 24/7/365. The industry standard written into service contracts is “five nines,” meaning data-center customers expect 99.999% uptime – or 0.001% or less downtime.

That translates to five minutes, 26 seconds of allowable downtime per year or 26 seconds per month (less than one second per day). One millisecond more is deemed too costly for customers.

To fulfill these stringent requirements, data centers use a combination of diesel generators and uninterruptible power supply (“UPS”). A UPS is usually a large amount of batteries that last just long enough for the diesel generators to kick on (about five to 15 minutes).

Once the diesel generators come on line, they can keep data centers running indefinitely.

To keep them in good working order, diesel generators can’t just sit there idle. They have to be run at least once a month. Also, when diesel fuel sits for too long, it breaks down and goes bad, just as milk left out of the fridge would. So, every new data center that comes on line raises the baseline for diesel-fuel demand.

And if a power outage at a major data-center hub occurred, it could trigger a massive national crisis.

As I explained in December:

To get an idea of the potential for sudden massive diesel consumption, let’s focus on Data Center Alley [in northern Virginia].

The highest concentration of data centers on the planet requires 4,140 megawatts of electricity generation capacity every day. If the power went out, its 4,000-plus permitted diesel generators would use… roughly 128,000 barrels, or 5.4 million gallons, of diesel per day.

Diesel is only delivered to the final customer by tanker truck. In a power outage, Data Center Alley’s roads would be overrun with dozens of trucks needing to arrive every hour just to keep the power on.

Oil Stocks Are Crushing the Most Popular AI Plays

After spelling out the virtues of diesel fuel and its close relationship to AI data centers in December, I recommended that readers buy two oil refinery stocks. They’re both up nearly 80% since then, completely trouncing all the top AI stocks. Paying subscribers wouldn’t like me revealing them, but even if all you’d done is buy the VanEck Oil Refiners ETF (CRAK), you’d still have nearly quadrupled the return of Alphabet, the top performer among the big AI stocks.

Of course, the war in Iran has boosted many energy stocks. Even though oil prices have come down, refinery stocks have continued to soar. And when I recommended them in December, I had no idea there’d be a war. I only knew about the connection between diesel fuel and data centers. And the need for backup power will persist long after the war has ended.

But something else was true then and remains true today. And it suggests that the refiners and other energy stocks are at the very beginning of a multiyear bull market. Most folks just don’t realize how neglected these stocks are.

The Energy Sector Has Largely Been Overlooked for Decades

It made up 16% of the S&P 500 Index in 2008. Then the shale boom went bust in 2014, and energy sank to just 7% of the S&P the following year.

Since then, investors have gone crazy for tech stocks. By 2020, energy accounted for less than 3% of the benchmark index in the world’s largest stock market.

Today, energy still sits at around 3% of the S&P 500. It has been growing in importance as the world sloughs off the Magnificent Seven stocks and rediscovers the critical products and services the other 493 companies supply – many of which keep the AI build-out going.

Energy remains a neglected investment in an essential sector, without which our modern standard of living simply can’t exist.

While investors shoveled money into tech stocks, they failed to understand all the power those new technologies would require. For example, a single data center can use as much power as 1,000 Walmart stores. One AI search can use 10 times more energy than its Google equivalent.

To fuel an AI-enabled world, it will take energy in just about every form you can imagine: coal, oil, gasoline, diesel, natural gas, uranium, solar, wind, batteries… everything.

In The Ferris Report, I’m building an AI-energy portfolio that will thrive regardless of whether Nvidia maintains its competitive advantage as the number-one AI chipmaker… or whether the hyperscalers’ massive capital spending pays off…

This month, I’ll show readers how to invest in nearly half a million miles of natural gas and other critical-energy pipelines, and the one company that’s providing data centers with secure natural gas supplies and the power plants they’ll need.

If you think AI is important and you’re not investing in the energy sector, you are missing what might very well be the biggest AI trade yet. Learn more about this energy opportunity by clicking here.

Good investing,

Dan Ferris