Enbridge(NYSE: ENB) and Microsoft(NASDAQ: MSFT) couldn't be more different. The former operates legacy pipelines and utilities that have helped fuel the industrial economy for decades, while the latter provides the tools needed to drive the digital economy forward. However, despite their differences, these companies need each other to thrive in today's world.
That's evident in a recent collaboration agreement between these companies, with Microsoft helping Enbridge harness the power of artificial intelligence (AI) to enhance its operations. Meanwhile, Enbridge supplies the fuel data centers -- like those Microsoft operates -- need to power AI applications.
A digital collaboration
Enbridge recently unveiled a collaboration with Microsoft and will use AI to drive significant advancements in safety, emissions reduction, and asset optimization across its pipeline and utility platforms. It's an extension of the digital-transformation initiatives the company began in 2020 to drive productivity and efficiency gains.
Microsoft's technology has been the foundation of that strategy. It has taken a cloud-first approach by migrating its workloads to Microsoft Azure. Enbridge also uses the tech titan's Microsoft 365 Copilot, Bing Enterprise, and ChatENB, an internal chatbot that uses the Azure OpenAI service.
The new collaboration will enable Enbridge to leverage AI powered by Microsoft Azure machine learning across its operations. Some of its AI-powered initiatives include:
- Energy optimizer: Enbridge will use AI to provide real-time operational insights about how to transport energy in the most efficient way possible. That will save the company money and reduce emissions.
- Right-of-way monitoring: The company will use AI to monitor the right of way more efficiently. This approach should help improve threat detection and response, helping reduce the risk of damage.
- Integrity engine: The energy infrastructure company will use AI to identify potential maintenance needs. That will enhance safety, reduce complexity, and maintain the health of its assets.
Cost savings and optimizations are an important earnings growth driver for Enbridge. The company aims to achieve 200 million Canadian dollars to CA$300 million ($146.6 million-$219.9 million) of recurring earnings before interest, taxes, depreciation, and amortization (EBITDA) savings per year. That would add 1% to 2% to its annual EBITDA tally each year and is a meaningful driver for a company targeting around 5% annual EBITDA growth.
AI-powered growth accelerator
Cost savings are only one earnings-growth driver for Enbridge. The company is working to capitalize on the expected surge in power demand from AI data centers to expand its operations. Those facilities use a significant amount of electricity, which could drive accelerated growth in power demand over the coming years.
For example, the company recently bought a trio of natural gas utilities from Dominion. The gas utility in Utah is already starting to see incremental demand from data centers.
Enbridge noted on its second-quarter earnings conference call, "In this quarter, we added 50 megawatts (MW) under contract and have numerous additional inquiries to provide natural gas brought to an additional 1.5 gigawatts (GW) of capacity." That's only one example.
The company also noted, "Throughout our utility footprint, we are engaged in additional early stage discussions with data centers that we expect to translate into future growth." In addition to driving accelerated growth in its utilities, Enbridge is seeking incremental expansion opportunities in its gas transmission business and renewable-power operations.
Microsoft has been on a clean power buying spree this year. The company inked a massive 10.5-GW deal with Brookfield Renewable to help supply renewable power to its operations in the U.S. and Europe. That was the largest-ever corporate power purchase agreement. Microsoft followed that up with a more than 800-MW deal with Constellation Energy to restart a previously shut down nuclear power plant.
Enbridge is also capitalizing on the growing demand for renewable energy from telecom and tech companies. Amazon is buying 100% of the power of its Fox Squirrel Solar project in Ohio, whileAT&T is the purchaser of all the electricity produced by its Orange Grove Solar project in Texas.
Expansion projects like these will help power additional earnings growth for Enbridge. That will enable the company to continue growing its cash flow and dividend.
The company has done a magnificent job paying dividends over the years. It has paid dividends for nearly 70 years and increased its payout for the last 29 years in a row.
Embracing the future should pay dividends for Enbridge
Enbridge is working with Microsoft to leverage the power of AI to improve safety, cut emissions, and reduce costs. That will help grow its earnings in the coming years. In addition, the company is capitalizing on the surging need for lower carbon energy by technology companies to power their AI data centers.
Those growth drivers should increase the company's earnings by around 5% annually, which should allow Enbridge to continue growing its 6.5%-yielding dividend. That combination of growth and income could give Enbridge the power to produce a more than 10% average annual total return in the future. That makes it a lower-risk way to earn an attractive return in the AI age.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matt DiLallo has positions in Amazon, Brookfield Renewable, Brookfield Renewable Partners, and Enbridge. The Motley Fool has positions in and recommends Amazon, Brookfield Renewable, Constellation Energy, Enbridge, and Microsoft. The Motley Fool recommends Brookfield Renewable Partners and Dominion Energy and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
