Editor’s Note: On Tuesday, June 30 at 3:00 PM ET — Robert Rapier is hosting a free live briefing on the income side of the AI buildout Jim describes below. Project Kilby is one data point in a $3 trillion infrastructure wave, and someone gets paid every time that power flows. Robert walks through exactly which essential-service “toll booths” income investors own — and how. Reserve your free seat →

In the race to advance artificial intelligence (AI) as an economic force, someone forgot to think about where all those computations would take place. At first, the companies developing software to animate AI mainly used mainframe computers housed within their own research facilities.

That approach worked fine until AI became a commercially viable product. At that point, demand for remote data processing and storage overwhelmed data centers built primarily to support apps running on smartphones and other mobile devices.

Over the past five years, the electrical capacity of data centers in the United States has grown at a compound annual growth rate of 24 percent. As a result, many communities are now insisting that data centers built in their jurisdictions be supplied by dedicated power and water sources separate from the public utility grids.

That issue is especially acute in Texas, which not only produces a lot of energy but is a big consumer of electricity, too. Under its “high demand case,” the EIA estimates that the average wholesale price for electricity in Texas could increase by nearly 79 percent next year.

Big Numbers

That is why energy giant Chevron (NYSE: CVX) announced last week that it is teaming up with heavy equipment manufacturers Caterpillar (NYSE: CAT) and GE Vernova (NSYE: GEV) to supply power to a new data center for Microsoft (NSDQ: MSFT) in West Texas called Project Kilby (“Kilby”).

The numbers are staggering. Under the agreement, “Kilby is expected to deliver approximately 2.67 gigawatts of capacity, built through a phased, modular approach that enables incremental expansion over time.” That is roughly equivalent to the total electrical capacity of all data centers in the United States last year.

Also, “Kilby is expected to generate significant economic benefits for the region, including more than $10 billion in state and local tax revenue, support almost 2,000 jobs, and drive broader economic growth.” That statement should provide state and local officials with enough ammo to quell community activists intent on sabotaging the project.

Eco Friendly

The press release further notes, “In lieu of freshwater, Kilby plans to use non-potable, brackish groundwater sources for power plant operations. Chevron is also working to advance solutions for reuse of produced water from oil and gas operations.”

In addition, “The plant design will incorporate advanced air emissions control technologies, including Selective Catalytic Reduction systems designed to reduce NOx emissions, as well as measures to minimize noise and light impacts on surrounding communities.”

In other words, Kilby will be mostly self-sufficient with respect to energy and water usage and be less visually and acoustically abrasive to the surrounding inhabitants. If true, then the NIMBY (not in my backyard) argument loses a lot of its potency.

First Power

Wall Street liked what it heard and was quick to get in on the action. The day that news broke (June 22), GE Vernova rose 1.6 percent while Caterpillar gained 3.7 percent. Those two companies are subcontractors that should make a lot of money off this arrangement without taking much risk.

That same day, Chevron eked out a small gain while Microsoft fell 3.2 percent. They will soon be writing some big checks to GE Vernova and Caterpillar to get this project completed, while the return on that investment will be several years down the road.

According to Chevron, “First power delivery is anticipated in 2028.” Presumably, Chevron would like to get this facility up and running while it has an energy-friendly administration in the White House. If it goes beyond that, Kilby could become a political football.

Necessary Conditions

The 2028 delivery date for first power assumes there are no delays in permitting, construction, or licensing along the way. If there are, then the future profits to Chevron and Microsoft from Kilby are pushed further out and may be less than anticipated.

It is also important to note that this isn’t a done deal yet: “This agreement represents an important milestone toward Chevron’s Final Investment Decision (FID), which is expected by the end of 2026, subject to the completion of other necessary conditions.”

We don’t know exactly what those “other necessary conditions” are just yet, but presumably they include financial support and other concessions from the state of Texas. Until then, investors may be better off waiting until the final details of this project are known before jumping on the Kilby bandwagon.

The Kilby project Jim describes above — 2.67 gigawatts, years of permitting ahead, and billions in corporate spending — is one toll booth. There are hundreds more like it across the U.S., all requiring the same grid capacity, the same natural gas, the same infrastructure operators who collect regardless of which AI company wins. Our colleague Robert Rapier has spent 36 years identifying exactly those businesses. On June 30 at 3:00 PM ET, he’s hosting a free live briefing on how income investors position for the full AI buildout — no single-company bets required. Free report when you register.