Goldman Sachs 3Q26 high-conviction themes in energy, utilities, and mining: data center energy use, refining margins, international oil services, and nuclear construction

Overview

This edition of Energy, Utilities & Mining Pulse was written by Goldman Sachs' energy, utilities, and mining team, with the core question being: heading into 3Q26, what investment themes and Buy-rated stocks does the coverage team have the highest conviction in? The report covers segments including midstream pipelines, integrated oil & gas and refining, oilfield services, metals and mining, utilities, E&P, and clean technology, focusing on stocks such as WMB, VLO, SLB, NUE, VST, DVN, and FLNC, while positioning them in the context of recent investor focus, industry supply and demand, the regulatory environment, capital spending, and valuation metrics.

Core views

The report is broadly constructive. In midstream, the core view is that natural gas demand growth has high visibility, driven by LNG exports, data center power usage, and coal retirements. In refining, it is positive on the support that tight inventories and a wider light-heavy oil spread provide to margins. In oil services, it favors a recovery in Middle East, international, and offshore activity. In steel, it is positive on price and margin support from tightening supply. In utilities and IPPs, it sees a positive inflection in electricity demand, improved regulatory clarity in PJM and ERCOT, and data center PPAs. In E&P, it focuses on portfolio optimization and asset monetization. In clean technology, it emphasizes AI data center energy storage demand as well as funding, siting, fuel, and reactor progress for nuclear construction.

Analysis framework

The report uses a combination of thematic catalysts and bottom-up stock selection: it first identifies the core themes most likely to affect sector valuations and earnings expectations over the next quarter, then screens for stocks already rated Buy with attractive valuations and clear fundamental or event catalysts. The analysis uses indicators such as free cash flow yield, EBITDA multiples, target-price total return, supply-demand gaps, inventory levels, regulatory progress, PPA signings, capital returns, and portfolio optimization.

Methodology notes

• Thematic investingHigh-conviction themes and stock catalyst framework

  Use industry catalysts over the next quarter to screen for Buy-rated stocks with upside potential

  The report is not a deep dive on a single company; instead, it asks analysts across industries to provide their highest-conviction themes and stock expressions for 3Q26 and explain how their views differ from market expectations.

• Valuation methodsFree cash flow yield and multiple comparison

  Assess risk-reward through FCF yield, EBITDA multiples, and target-price total return

  For example, VLO is described as having an estimated 2026 FCF yield of about 13%, above the sector's roughly 11%; DVN's estimated average FCF yield for 2027/2028 is about 15%, above the roughly 11% for large-cap E&P peers; VST trades at about 8.5x 2027 EBITDA, below the target multiple of 10x.

• Supply-demand analysisEnergy and power supply-demand driver framework

  Use incremental demand, existing capacity utilization, and supply constraints to judge the direction of industry profits and capital spending

  The report treats LNG exports, data center power load, coal retirements, refining inventories, steel supply, and the resumption of Middle East oilfield operations as the main supply-demand variables affecting earnings and valuations across the relevant sectors.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• WMB

  A high-conviction midstream pipeline name benefiting from natural gas demand growth, data center load, and LNG exports.

  Strengths

  The Socrates project is scheduled to start in 3Q26, and the roughly 2 GW power innovation project pipeline could be further de-risked; the Transco and Northwest pipeline systems offer traditional natural gas pipeline growth opportunities.

  Weaknesses

  New projects still depend on funding, counterparties, regional siting, and execution timeline updates.

  Comparison

  The report also mentions that midstream companies such as KMI, DTM, TRP, and ET may benefit from incremental natural gas demand.

  Risks

  Project delays, weaker-than-expected customer contracting, lower-than-expected natural gas demand growth, or slower-than-expected valuation expansion.

• VLO

  A Buy-rated high-conviction refining name and the report's main stock expression of a more constructive refining outlook.

  Strengths

  The company's scale, quarterly execution track record, low-cost operations, and Gulf Coast export capability are viewed as advantages; its estimated 2026 FCF yield of about 13% is above the sector's roughly 11%.

  Weaknesses

  It remains exposed in the short term to macro oil prices, product demand, and geopolitical developments.

  Comparison

  Relative to the sector average, the report believes VLO's FCF yield and capital return are more attractive.

  Risks

  A decline in refining margins, easing inventory tightness, a smaller-than-expected light-heavy oil spread, or weaker-than-expected summer travel demand.

• SLB

  A high-conviction international oil services name benefiting from resumed Middle East production, as well as increased well workover and intervention activity.

  Strengths

  SLB is one of the largest participants in international oilfield services, with strong exposure to Saudi Arabia, the UAE, and other parts of the Middle East.

  Weaknesses

  The report still expects Middle East disruptions to affect oil services companies' reported performance over the next few quarters.

  Comparison

  XPRO, WFRD, and HP, which also have international and offshore exposure, are likewise cited by the report as beneficiaries.

  Risks

  A slower-than-expected recovery in Middle East activity, delayed NOC capital spending, renewed geopolitical escalation, or postponed project FIDs.

• NUE

  A Buy view in steel, with the report arguing that the recent pullback offers an entry point ahead of quarterly earnings.

  Strengths

  Tighter flat-rolled supply, inventory dislocation, and stable scrap prices could support steel prices and margin expansion.

  Weaknesses

  The market is concerned about demand in a high-interest-rate environment, while imports are still rising modestly.

  Comparison

  The report describes the steel industry overall as one with tight supply and favorable pricing tailwinds over the next 12 months.

  Risks

  Weaker demand, greater import pressure, falling steel prices, or weaker-than-expected improvement in free cash flow.

• VST

  A Buy-rated high-conviction utilities and IPP name benefiting from an inflection in power demand, data center PPAs, and regulatory clarity.

  Strengths

  ERCOT load growth, a clearer PJM regulatory path, stronger PJM power prices, and signed data center PPAs could drive guidance revisions higher.

  Weaknesses

  Expansion of power infrastructure faces affordability concerns and regulatory scrutiny.

  Comparison

  Within the IPP discussion, investors are most constructive on VST, while interest in NRG is rising; sentiment on CEG is neutral to cautious, and sentiment on TLN is bullish, though some investors are concerned about its recent gains.

  Risks

  PJM or ERCOT policy outcomes falling short of expectations, slower-than-expected progress on data center PPAs, weaker power prices, or limited valuation multiple expansion.

• DVN

  A Buy-rated high-conviction E&P name, with the report emphasizing its portfolio optimization and M&A synergy path.

  Strengths

  Its estimated average FCF yield for 2027/2028 is about 15%, above the roughly 11% for large-cap E&P peers; catalysts in 2H26/2027 include portfolio outlook, A&D activity, and a $1.0bn synergy target.

  Weaknesses

  The market remains focused on mid-cycle oil price assumptions, the pace of portfolio adjustment, and visibility on monetizing non-Permian assets.

  Comparison

  The report cites OVV as a positive example of portfolio optimization, echoing DVN's portfolio optimization theme.

  Risks

  WTI prices below assumptions, suboptimal pricing or timing for asset sales, or M&A synergies materializing below expectations.

• FLNC

  A Buy-rated high-conviction clean technology name benefiting from behind-the-meter storage demand from AI data centers.

  Strengths

  The company is bidding on two hyperscaler master supply agreements, and management expects to begin receiving initial orders in F3Q26; the related projects make up most of its roughly 12 GW data center pipeline.

  Weaknesses

  Bearish market views focus on competitive pressure and visibility on converting large customer orders.

  Comparison

  The report uses FLNC as the stock expression for data center energy storage demand, while also citing CCJ and UEC as catalyst names tied to the nuclear theme.

  Risks

  Failure of master supply agreements to convert into orders, intensifying competition, delayed project awards, or a slowdown in data center capital spending.

• CCJ

  A beneficiary of the nuclear construction theme, with investors focused on the impact of DOE financing on new reactor construction and valuation.

  Strengths

  The report estimates that each new reactor could add more than about $2/share of upside to the current target price.

  Weaknesses

  Some of the upside may already be priced in, and investors are still assessing the financing mechanism and Westinghouse payment arrangements.

  Comparison

  Along with UEC, it is cited as a related company with news catalysts from nuclear progress, funding, and fuel initiatives.

  Risks

  Delays in nuclear project approvals and construction, changes in financing terms, slower-than-expected supply chain mobilization, or overly high valuation expectations.

• UUUU

  A name tied to the rare earths and magnetic materials vertical integration theme, with the report noting increased investor interest after its acquisition of Vacuumschmelze GmbH & Co. KG.

  Strengths

  The acquisition of VAC helps strengthen its advanced soft magnetic and permanent magnet materials manufacturing capabilities, reinforcing the vertical integration narrative.

  Weaknesses

  Success depends on progress in rare earth assets, competitiveness in magnetic materials manufacturing, and Western demand for magnetic materials.

  Comparison

  It is linked to the nuclear and critical materials supply chain theme, but the report does not provide as detailed a high-conviction stock case as it does for names like WMB and VLO.

  Risks

  Liquidity pressure, uncertainty around government funding, rare earth asset development risk, and integration execution risk.

• FCX

  A copper and gold mining name under investor focus, with the report stating that near-term sentiment is cautious but long-term sentiment remains constructive.

  Strengths

  Its North American copper exposure could benefit from U.S. copper tariffs, and long-term investors view current headwinds as temporary.

  Weaknesses

  Weaker gold prices, cost inflation in diesel and other inputs, uncertainty around Grasberg ramp-up, and U.S. copper tariffs are weighing on near-term sentiment.

  Comparison

  Compared with other metals and mining companies, FCX is more affected in the short term by uncertainty ahead of 2Q26 earnings.

  Risks

  Declining metal prices, higher-than-expected cost inflation, slower-than-expected Grasberg production recovery, or lack of clarity on copper tariff policy.

Key data

• Potential incremental U.S. LNG export demand约11 bcf/dThe report states that new LNG capacity by the latter part of this decade could add about 11 bcf/d of demand, equivalent to nearly 60% upside versus current U.S. LNG exports of about 19 bcf/d.
• Data center-related natural gas demand约7-8 bcf/dThe report believes data center demand is an important tailwind for U.S. natural gas and midstream pipeline demand.
• Natural gas demand from coal retirements约3 bcf/dThis increment is meaningful relative to current U.S. power-sector natural gas demand of about 35 bcf/d.
• WMB power innovation projects约2 GW项目储备；Socrates计划3Q26启动The report believes the launch of Socrates will help de-risk execution of WMB's follow-on power innovation projects.
• VLO free cash flow yield约13%，板块平均约11%The report believes VLO offers attractive risk-reward on 2026 estimates.
• VLO expected capital return2026年约$7.8bn，2027年约$6.2bnThe report states these buybacks and dividends correspond to yields of about 10% and 8%, respectively.
• Recent pullback in NUE share price约11%The report believes the pullback provides an entry point ahead of quarterly earnings on July 27.
• VST target price and return potential$209目标价；约25%总回报The report states that VST trades at about 8.5x estimated 2027 EBITDA, below its 10x target multiple.
• DVN valuation2027/2028年平均FCF收益率约15%The report states that large-cap E&P peers average about 11% and highlights a catalyst path through 2H26/2027.
• FLNC data center pipeline约12 GWThe report states that two hyperscaler-related master supply agreements make up most of FLNC's data center pipeline.
• DOE nuclear financing条件性贷款承诺约$17.5bnThe funding is intended to support procurement of long-lead items for 10 new large nuclear reactors.
• Estimated CCJ impact per reactor每座反应堆约$2/股以上目标价上行The report states that investors are focused on the potential valuation impact of 10 new reactors on CCJ.

Impact & implications

For portfolios, the report suggests using incremental demand and near-term catalysts along the energy and power chain as the core 3Q26 positioning theme: first, natural gas and power demand driven by data centers and LNG, benefiting midstream pipelines, IPPs, and selected land and water resource assets; second, the recovery of Middle East oilfield activity following easing geopolitical tensions, benefiting international oil services; third, refining and steel profits supported by tight supply; and fourth, nuclear energy and clean technology driven by policy financing and project progress. The report also cautions that risk sources vary significantly across sub-sectors, including not only oil prices and demand destruction, but also regulation, affordability, project execution, competitive pressure, and valuations already reflecting expectations.

Risks

• A decline in oil prices or demand destruction could pressure earnings expectations for E&P and oil services.
• Renewed Middle East geopolitical tensions or recurring events related to the Strait of Hormuz could affect oil flows, the recovery in activity, and service demand.
• Easing tightness in refining inventories, weaker-than-expected summer demand, or a narrower light-heavy oil spread could weaken earnings for refining names such as VLO.
• Power and data center infrastructure construction may face regulatory, affordability, interconnection, and local opposition challenges.
• If data center PPAs, storage orders, and hyperscaler agreements progress more slowly than expected, catalysts for related names such as VST and FLNC would weaken.
• Nuclear financing, site selection, fuel supply, and reactor criticality progress carry policy and execution uncertainty.
• If steel demand is dragged down by high interest rates or rising imports, the pricing tailwind from tighter supply could weaken.
• Some high-profile names may have already priced in positive developments; without new orders, project announcements, or guidance upgrades, valuation expansion may be limited.

What to watch

• The 3Q26 startup progress of WMB's Socrates project, along with updates on funding, customers, and geographic deployment for its subsequent roughly 2 GW power innovation projects.
• The actual pull on natural gas demand from new U.S. LNG capacity, data center load, and coal retirements.
• Product inventories, crack spreads, light-heavy oil spreads, and capital return execution for VLO and other refiners during the summer driving season.
• Orders and management guidance for SLB and other international oil services companies regarding Middle East well workover, intervention, and production recovery activity.
• NUE's commentary on steel prices, supply, scrap costs, and buybacks in its quarterly earnings on July 27.
• New information from VST on ERCOT load, the PJM regulatory process, data center PPAs, and changes in power prices.
• DVN's execution path on portfolio optimization, monetization of non-Permian assets, A&D activity, and its $1.0bn synergy target.
• Hyperscaler master supply agreements, initial orders, and progress on the 12 GW data center pipeline disclosed by FLNC in F3Q26 results.
• DOE nuclear financing, reactor site selection, fuel plans, and catalysts related to CCJ and UEC.
• FCX's 2Q26 results, Grasberg ramp-up, cost inflation, and developments in U.S. copper tariffs.