Key Points

This industry giant is 30% below its 52-week high. The company is a Dividend King with over 50 years of annual dividend increases behind it. The products it makes are integral to the growth of artificial intelligence. 10 stocks we like better than Nucor ›

Artificial intelligence (AI) is a new technology that is really built atop old technologies. In fact, it can't operate without a few very basic products and services. For example, if the power goes out AI doesn't operate. But more to the point, AI has to live somewhere and Nucor(NYSE: NUE) provides the things that are needed to build the structures that house AI. Here's why this unloved company could get an AI boost in the years ahead.

What is artificial intelligence?

Artificial intelligence may sound fancy, but it is really just a computer program. That's important to remember because computer programs have to run on computers, which is why Nvidia is such a hot stock. It makes the chips that function as AI's brain. But there's so much more going on here than just chips.Image source: Getty Images.

For example, Dominion Energy recently highlighted that in the second half of 2024 it experienced an 88% surge in capacity demand for connections directly related to data centers. That's basically where AI lives. But step back and think about that for one second.

In order for AI to have a home two things need to happen. First, a data center has to be built. And second, electricity infrastructure has to be created to provide power to that data center. Both of those things are products that need steel, which is what Nucor provides. In fact, Nucor has specific divisions that make building components for data centers, and the structures that support electric power lines.NUE data by YCharts

Why investors should consider Nucor

Nucor's shares are down around 30% from their 52-week highs. The stock is clearly unloved today on Wall Street, given that it is currently in its own personal bear market. That isn't shocking, however, given that steel is a cyclical industry. What's notable about this fact, however, is that this is the time when long-term investors should be most interested in a cyclical stock, not when it is flying high.

A big reason why Nucor is so attractive is that its business model has proven incredibly resilient over time. The best evidence of that is the company's status as a Dividend King, with five decades of annual dividend increases behind it. That requires a strong business model that gets executed well in both good markets and bad.

Nucor actually views bad markets as an opportunity to invest in its business so it comes out the other side of an industry downturn a better company. It can do this because it has a very strong balance sheet, with a modest debt-to-equity ratio of 0.4 times and a debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of only around 2 times. But the big benefit is that when the steel market eventually recovers as it always has before, Nucor produces higher highs and higher lows with regard to its earnings. That is actually a specific company goal.

Story Continues

Now add in the tailwind that is likely to come from AI and this story starts to sound pretty compelling. Nucor is out of favor on Wall Street but is investing to become a better business, with $3 billion in capital investments planned in 2025 and projects that will come online through to 2027. And it is likely to see continued business strength from the needs of one of the hottest sectors on Wall Street, AI and all that goes into supporting that industry.

Don't sleep on Nucor or you could miss your opportunity

Nucor's stock momentum actually turned for the better in April, with the stock now off of its lows. There's still time to jump on this Dividend King steel company, but you'll need to act quickly. Although AI isn't the only thing supporting Nucor's business, it is an important strength right now. When the rest of the company's end markets start to turn for the better, AI could be the super charger that takes the stock to new highs.

Should you invest $1,000 in Nucor right now?

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Reuben Gregg Brewer has positions in Dominion Energy and Nucor. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.

Here's an Unexpected Artificial Intelligence Winner You Probably Weren't Thinking About was originally published by The Motley Fool

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