Energy Transfer vs. Williams Companies: Which Natural Gas Giant Wins the AI Power Buildout?

Energy Transfer (NYSE: ET) and The Williams Companies (NYSE: WMB) are two of the largest midstream companies in the United States. Energy Transfer operates more than 140,000 miles of pipeline in 44 states, while Williams owns over 32,000 miles of pipeline in 24 states. Both companies are well-insulated from volatile commodity prices because they merely charge upstream and downstream companies "tolls" to use their infrastructure.

According to the International Energy Agency (IEA), natural gas accounts for more than 40% of the grid electricity consumed by U.S. data centers. Since Energy Transfer and Williams transport massive amounts of natural gas through their pipelines, they're both benefiting from the rapid growth of the power-hungry cloud infrastructure and AI markets. However, one of these companies clearly has more exposure to the AI power build-out than the other.

The key differences between Energy Transfer and Williams

Energy Transfer transports crude oil, natural gas, natural gas liquids (NGL), and other refined products through its pipelines. It also helps companies export liquefied natural gas (LNG) overseas through its marine export terminals.

Energy Transfer's pipelines transport roughly 30% of the natural gas produced in the United States. However, it only generates about 40% of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from its natural gas assets.

Williams owns Transco, the largest natural gas pipeline system in the U.S., which connects the Gulf Coast to the Atlantic Seaboard and Northeast markets. It transports about a third of all natural gas produced in the U.S., and it generates all of its adjusted EBITDA from those operations. That makes it much more of a "pure play" on the AI market -- which requires massive amounts of natural gas -- than Energy Transfer's more diversified business.

Why is Williams the better AI infrastructure play?

Energy Transfer and Williams will both benefit from the soaring demand for natural gas from hyperscalers, but Williams should reap the bigger benefits. Meanwhile, Energy Transfer is more exposed to the crude oil market -- which has less direct exposure to the AI market. Energy Transfer is also a master limited partnership (MLP), which requires additional tax paperwork each year, whereas Williams is more conveniently structured as a C corporation.

That's why Williams trades at 14 times this year's adjusted EBITDA, while Energy Transfer looks much cheaper at 7 times this year's adjusted EBITDA. Energy Transfer's forward yield of 6.5% is much higher than Williams' 2.9% yield, but it could deliver lower long-term returns.

Leo Sun has positions in Energy Transfer and Williams Companies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.