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Can Chevron's Microsoft Partnership Power the Next Leg of Growth?
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Key Takeaways
Chevron signed a 20-year deal to power a Microsoft West Texas data center with a gas-fired facility.
Chevron expects Project Kilby to deliver 2.67 GW in phases from 2028 with mid-teen return targets.
Chevron posted higher Q1 2026 production and returned $6B via dividends and buybacks during the quarter.
Chevron Corporation (CVX - Free Report) is expanding beyond its traditional oil and gas business by entering one of the fastest-growing markets in the global economy — artificial intelligence (“AI”) infrastructure. The company recently signed a 20-year power purchase agreement with Microsoft Corporation (MSFT - Free Report) to develop a dedicated natural gas-fired power facility for a West Texas data center. The deal highlights CVX's strategy to capitalize on rising electricity demand from AI data centers while creating a new source of long-term cash flows.
The announcement follows Chevron's solid first-quarter 2026 operating performance, supported by higher production from legacy Hess assets, the Permian Basin and the Gulf of America. While the Microsoft partnership opens an entirely new growth avenue, investors must assess whether this opportunity is significant enough to justify buying the stock today.
Chevron's Microsoft Deal Creates a New Growth Platform
Under the agreement, CVX's subsidiary, Energy Forge One, will develop Project Kilby, a co-located natural gas-fired power facility dedicated to supplying electricity to a Microsoft-operated data center in West Texas under a 20-year power purchase agreement.
Project Kilby is expected to provide approximately 2.67 gigawatts of generating capacity through a phased buildout, with first power targeted for 2028. Management expects the project to generate diversified cash flows that are largely independent of oil and natural gas price cycles while targeting mid-teen investment returns. By supplying electricity directly to the MSFT-operated data center rather than the regional grid, CVX also expects greater reliability for AI workloads.
For CVX, the agreement represents more than a single infrastructure project. It reveals how the company can leverage its Permian natural gas resources, engineering expertise and project execution capabilities to participate in the long-term growth of AI infrastructure. If CVX secures similar agreements with additional hyperscale customers, this business could become a meaningful complement to its traditional upstream operations.
Chevron's Core Business Remains Strong
Beyond the Microsoft agreement, Chevron continues to deliver solid operational results. During the first quarter of 2026, worldwide production increased 15% year over year to 3.86 million barrels of oil equivalent per day, while U.S. production climbed 24%, driven by the Hess acquisition and continued growth in the Permian Basin and the Gulf of America.
The company also maintained one of the industry's strongest shareholder-return programs, distributing $6 billion through dividends and share repurchases during the quarter. This marked CVX's 16th consecutive quarter of returning more than $5 billion to its shareholders. Management also reaffirmed its capital spending guidance and structural cost-reduction target of $3-$4 billion by the end of 2026.
These strengths give CVX the financial flexibility to invest in long-duration infrastructure projects without compromising shareholder returns.
ExxonMobil and Shell Could Also Benefit From AI Demand
CVX is not the only integrated energy company seeking to benefit from AI-driven electricity demand.
ExxonMobil (XOM - Free Report) is leveraging its extensive natural gas resources while evaluating opportunities to provide lower-carbon electricity solutions for hyperscale data centers. Like CVX, ExxonMobil believes AI-driven power demand could become an important source of long-term natural gas consumption.
Meanwhile, Shell plc (SHEL - Free Report) is approaching the opportunity through its integrated gas and LNG business. As one of the world's largest LNG suppliers, Shell is well positioned to benefit from rising natural gas demand as AI data centers require reliable, around-the-clock electricity. Shell's global LNG portfolio provides additional flexibility to serve markets experiencing rapid AI infrastructure expansion.
We believe Chevron is among the first integrated energy companies to secure a long-term commercial agreement to supply dedicated power for a hyperscale AI data center.
Risks Should Not Be Ignored
Although Project Kilby strengthens Chevron's long-term growth outlook, the project remains in its early stages. Final investment approval is expected later this year, while commercial operations are targeted for 2028. Key uncertainties continue to include construction costs, execution risks, regulatory approvals, customer expansion and potential risks associated with an AI bubble.
In addition, the project's financial contribution is likely to remain modest relative to CVX's overall earnings during the initial years. The company's near-term results will continue to depend primarily on crude oil prices, refining margins and upstream production growth.
Valuation Remains Reasonable Despite AI Growth Potential
From a valuation perspective, CVX trades at a forward P/E ratio of about 12.22, compared with ExxonMobil at 12.31 and Shell at 8.52. This makes Shell the least expensive among the three on an earnings basis.
Image Source: Zacks Investment Research
Analysts Expect Steady Earnings Growth
Over the past 60 days, the Zacks Consensus Estimate for CVX's earnings per share has increased 1.73% for 2026 and 4.95% for 2027.
Image Source: Zacks Investment Research
Over the past year, CVX’s shares have gained roughly 13.8%, while ExxonMobil has advanced about 20.7% and Shell has risen approximately 13.5%.
Share Price Performance Comparison
Image Source: Zacks Investment Research
Is CVX Stock a Buy?
The partnership with Microsoft gives Chevron an attractive long-term growth narrative by connecting one of the world's largest energy companies with one of the fastest-growing sources of electricity demand. Combined with strong production growth, disciplined capital allocation and consistent shareholder returns, Chevron is building an additional avenue for growth beyond its traditional energy business.
However, the financial impact of Project Kilby remains several years away and CVX continues to face the commodity-price volatility that affects the broader energy sector. With a Zacks Rank #3 (Hold), CVX appears suitable for long-term investors seeking exposure to a financially strong integrated energy company that is gradually expanding into AI infrastructure. Investors may prefer to wait for additional execution milestones before becoming more aggressive on the stock.
View the Zacks #1 Rank List
Image: Shutterstock
Can Chevron's Microsoft Partnership Power the Next Leg of Growth?
Key Takeaways
Chevron Corporation (CVX - Free Report) is expanding beyond its traditional oil and gas business by entering one of the fastest-growing markets in the global economy — artificial intelligence (“AI”) infrastructure. The company recently signed a 20-year power purchase agreement with Microsoft Corporation (MSFT - Free Report) to develop a dedicated natural gas-fired power facility for a West Texas data center. The deal highlights CVX's strategy to capitalize on rising electricity demand from AI data centers while creating a new source of long-term cash flows.
The announcement follows Chevron's solid first-quarter 2026 operating performance, supported by higher production from legacy Hess assets, the Permian Basin and the Gulf of America. While the Microsoft partnership opens an entirely new growth avenue, investors must assess whether this opportunity is significant enough to justify buying the stock today.
Chevron's Microsoft Deal Creates a New Growth Platform
Under the agreement, CVX's subsidiary, Energy Forge One, will develop Project Kilby, a co-located natural gas-fired power facility dedicated to supplying electricity to a Microsoft-operated data center in West Texas under a 20-year power purchase agreement.
Project Kilby is expected to provide approximately 2.67 gigawatts of generating capacity through a phased buildout, with first power targeted for 2028. Management expects the project to generate diversified cash flows that are largely independent of oil and natural gas price cycles while targeting mid-teen investment returns. By supplying electricity directly to the MSFT-operated data center rather than the regional grid, CVX also expects greater reliability for AI workloads.
For CVX, the agreement represents more than a single infrastructure project. It reveals how the company can leverage its Permian natural gas resources, engineering expertise and project execution capabilities to participate in the long-term growth of AI infrastructure. If CVX secures similar agreements with additional hyperscale customers, this business could become a meaningful complement to its traditional upstream operations.
Chevron's Core Business Remains Strong
Beyond the Microsoft agreement, Chevron continues to deliver solid operational results. During the first quarter of 2026, worldwide production increased 15% year over year to 3.86 million barrels of oil equivalent per day, while U.S. production climbed 24%, driven by the Hess acquisition and continued growth in the Permian Basin and the Gulf of America.
The company also maintained one of the industry's strongest shareholder-return programs, distributing $6 billion through dividends and share repurchases during the quarter. This marked CVX's 16th consecutive quarter of returning more than $5 billion to its shareholders. Management also reaffirmed its capital spending guidance and structural cost-reduction target of $3-$4 billion by the end of 2026.
These strengths give CVX the financial flexibility to invest in long-duration infrastructure projects without compromising shareholder returns.
ExxonMobil and Shell Could Also Benefit From AI Demand
CVX is not the only integrated energy company seeking to benefit from AI-driven electricity demand.
ExxonMobil (XOM - Free Report) is leveraging its extensive natural gas resources while evaluating opportunities to provide lower-carbon electricity solutions for hyperscale data centers. Like CVX, ExxonMobil believes AI-driven power demand could become an important source of long-term natural gas consumption.
Meanwhile, Shell plc (SHEL - Free Report) is approaching the opportunity through its integrated gas and LNG business. As one of the world's largest LNG suppliers, Shell is well positioned to benefit from rising natural gas demand as AI data centers require reliable, around-the-clock electricity. Shell's global LNG portfolio provides additional flexibility to serve markets experiencing rapid AI infrastructure expansion.
We believe Chevron is among the first integrated energy companies to secure a long-term commercial agreement to supply dedicated power for a hyperscale AI data center.
Risks Should Not Be Ignored
Although Project Kilby strengthens Chevron's long-term growth outlook, the project remains in its early stages. Final investment approval is expected later this year, while commercial operations are targeted for 2028. Key uncertainties continue to include construction costs, execution risks, regulatory approvals, customer expansion and potential risks associated with an AI bubble.
In addition, the project's financial contribution is likely to remain modest relative to CVX's overall earnings during the initial years. The company's near-term results will continue to depend primarily on crude oil prices, refining margins and upstream production growth.
Valuation Remains Reasonable Despite AI Growth Potential
From a valuation perspective, CVX trades at a forward P/E ratio of about 12.22, compared with ExxonMobil at 12.31 and Shell at 8.52. This makes Shell the least expensive among the three on an earnings basis.
Image Source: Zacks Investment Research
Analysts Expect Steady Earnings Growth
Over the past 60 days, the Zacks Consensus Estimate for CVX's earnings per share has increased 1.73% for 2026 and 4.95% for 2027.
Image Source: Zacks Investment Research
Over the past year, CVX’s shares have gained roughly 13.8%, while ExxonMobil has advanced about 20.7% and Shell has risen approximately 13.5%.
Share Price Performance Comparison
Image Source: Zacks Investment Research
Is CVX Stock a Buy?
The partnership with Microsoft gives Chevron an attractive long-term growth narrative by connecting one of the world's largest energy companies with one of the fastest-growing sources of electricity demand. Combined with strong production growth, disciplined capital allocation and consistent shareholder returns, Chevron is building an additional avenue for growth beyond its traditional energy business.
However, the financial impact of Project Kilby remains several years away and CVX continues to face the commodity-price volatility that affects the broader energy sector. With a Zacks Rank #3 (Hold), CVX appears suitable for long-term investors seeking exposure to a financially strong integrated energy company that is gradually expanding into AI infrastructure. Investors may prefer to wait for additional execution milestones before becoming more aggressive on the stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.