'Energy service stocks to see a boost': Graham

Key Concepts

• Energy Service Sector: Companies providing the technical labor, equipment, and infrastructure maintenance required for oil and gas production.
• Backlog: The volume of contracted but uncompleted work, serving as a key indicator of future revenue stability for service firms.
• Hyperscalers: Large-scale cloud computing providers (e.g., Amazon, Google, Microsoft) driving the massive build-out of AI data centers.
• Long-life Reserves: Oil and gas assets that can be extracted over a long period, typically associated with politically stable regions like Canada.
• Diluents: Substances added to heavy crude oil to reduce its viscosity, allowing it to flow through pipelines.

---

The Energy Service Sector Outlook

Gavin Graham, CIO of Spire Wealth Management, argues that the energy service sector—which comprises 8–9% of the energy index—is poised for a significant boost. While energy producers have seen recent volatility, service companies like SLB (formerly Schlumberger), Halliburton, and Patterson Systems are essential for the physical recovery and maintenance of global energy infrastructure.

• Middle East Recovery: Despite a short-term hit to earnings (SLB noted a 6–9 cent impact on Q1 earnings due to regional instability), the long-term outlook is positive. The destruction and closure of facilities necessitate extensive repair work once operations resume.
• Under-invested Markets: Graham highlights Venezuela and Iran as prime examples of markets with severely degraded infrastructure. Iran’s energy sector, in particular, has suffered from chronic under-investment since the 1980s. A lasting geopolitical truce could unlock significant revenue opportunities for service firms to modernize these aging assets.
• Diversification into AI: SLB is leveraging its expertise in building complex, rugged installations in remote environments to construct modular data centers for AI. This provides a strategic hedge and an additional revenue stream beyond traditional oilfield services.

Market Dynamics and Investment Strategy

Graham emphasizes that while the price of oil experienced its largest one-day drop since 2020, the underlying profitability of energy producers remains robust.

• Profitability Thresholds: Even with oil prices fluctuating between $60 and $80 per barrel, major producers remain highly profitable. Graham suggests that investors who have been hesitant to include energy in their portfolios should view recent geopolitical events as a catalyst to increase exposure.
• Geopolitical Stability: He advocates for investing in energy assets located in politically stable, "friendly" jurisdictions, specifically highlighting Alberta, Canada, as a premier location for long-life resource assets.
• Rebalancing from Tech: Graham observes that the "Magnificent 7" tech stocks (excluding Apple) are down over 20% from their peaks. He argues that the massive capital expenditure required for AI data centers—coupled with power supply and infrastructure bottlenecks—makes the sector risky. He advises investors to "take a profit" on tech holdings and rebalance into the energy sector.

Labor Market and Skills

A notable perspective presented by Graham is the shift in the labor market due to AI. He argues that while AI may displace certain roles, it cannot replicate the physical, complex work required to build and maintain energy infrastructure. He suggests that trade schools may offer more future-proof career paths than traditional university degrees, as they provide the specialized skills necessary for the "real-world" work of energy production.

Synthesis and Conclusion

The core takeaway is that the energy service sector is currently undervalued relative to its long-term necessity. As global energy infrastructure requires significant repair and modernization—particularly in the Middle East and under-invested regions—service companies are positioned for growth. Investors are encouraged to move away from the speculative, high-cost build-out of AI infrastructure and toward the tangible, profitable, and essential energy sector, prioritizing assets in stable regions like Canada.