Shares of the U.S. energy behemoth Chevron are trading near record highs, buoyed by investor enthusiasm for an unexpected strategic expansion into artificial intelligence infrastructure. However, despite the successful integration of Hess Corporation and solid profitability, a note of caution is emerging from analysts. Following a significant rally, warnings are mounting that the stock’s valuation may be stretched, raising questions about its near-term upside potential.
Valuation Under the Microscope After a Strong Run
The recent surge in Chevron’s share price, which has climbed more than 16% since the start of the year and sits just below its 52-week high, is now drawing scrutiny. On February 2, global bank HSBC downgraded its rating on the stock from “Buy” to “Hold.” While the bank raised its price target to $180, analysts argued that the current share price leaves little room for further appreciation. They noted that positive factors, including the company’s reliable dividend and share buyback program, are already fully reflected in the valuation.
Robust Earnings Amid Revenue Pressure
Chevron’s latest quarterly results demonstrated its operational resilience. Although revenue of $45.79 billion missed expectations and represented a year-over-year decline of approximately 10%, profitability remained strong. The company reported earnings per share of $1.52, comfortably surpassing Wall Street forecasts.
This performance was largely driven by the rapid and effective integration of Hess Corporation. Chevron has already identified synergies worth $1 billion from the acquisition, validating the deal’s strategic rationale. The newly acquired assets in Guyana, alongside its established operations in the Permian Basin, are proving to be high-margin growth engines that help mitigate commodity price volatility.
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Betting on AI’s Massive Power Demand
In a move beyond its traditional oil and gas business, Chevron is making a bold play to address the energy needs of the AI revolution. The company has unveiled plans to build natural gas-fired power plants in West Texas designed specifically to supply electricity to data centers. These facilities would operate completely independently from the public grid.
This strategic pivot positions Chevron not merely as a commodity supplier but as a direct partner to the technology sector. By targeting the immense power requirements of AI infrastructure, the company is attempting to secure a long-term source of demand for its natural gas resources, a prospect that has captured the market’s imagination.
Execution and Discipline in Focus
Looking ahead, Chevron maintains a focus on strict capital discipline. Its planned investments for 2026 are set between $18 and $19 billion, at the lower end of its long-term guidance. Investor attention is now shifting toward the concrete execution of its AI-related power strategy and the upcoming quarterly results, expected in early May. These forthcoming figures will be crucial in determining whether the efficiency gains from the Hess integration can sustainably support the stock’s elevated valuation.
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