We Keep Finding AI in 'Unexpected' Places

By Joe Austin, senior analyst, Chaikin Analytics

The search for oil and gas never stops... And it never looks the same.

On Alaska's North Slope, rigs operate in some of the most punishing conditions on Earth. Folks who do the work say it's like drilling on the moon.

In winter, temperatures routinely drop well into the negatives. Around the winter solstice, daylight can last as little as two hours a day.

The enemy is the environment. Low light, brutal cold, and encroaching sea ice shut down operations for nearly half the year.

When your drilling window is that short, every hour counts.

Meanwhile, thousands of miles south, drillships in the warm waters off Guyana operate over the Stabroek Block. It's a deepwater tract that ExxonMobil's (XOM) CEO says is one of the biggest oil discoveries in nearly two decades.

The conditions are the opposite of Alaska's. But the stakes are just as high. The water here can be more than 6,000 feet deep before you even reach the oil reservoir.

It's a completely floating operation. Everything costs a fortune, and nothing stops. The "day rate" for drillships costs between $400,000 and $500,000 per day.

Then there's the U.S. shale patch...

In the Permian Basin and the Marcellus Shale, the challenge isn't weather or day rates. It's doing more with less. From late 2022 through late last year, the active rig count in the lower 48 states dropped by about one-third.

But over that period, Permian production jumped by 18%. And Appalachia production increased by 10%. Last July, the lower 48 states set a new monthly production record for crude oil.

If fewer rigs are producing more oil, efficiency is driving that growth.

These are three environments with very different problems. Yet the solution is always the same – better technology.

And right now, that means AI...

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AI Is Reshaping Industrial Processes in Real Time

Across the oil and gas industry, AI is reshaping how wells get drilled.

The basic machinery has been around for decades – a derrick to support the drill string, a rotary system to spin the bit, a hoist to raise and lower equipment, and a circulation system to pump drilling fluid in and out of the hole.

But what happens inside those systems has changed dramatically.

Sensors in the drill string can now send live data up from the bottom of the hole while drilling is still underway. That gives engineers a real-time read on rock type, pressure, and well direction.

Directional drilling lets crews bend the well path underground to reach targets thousands of feet away. This makes it possible to drill multiple wells from a single surface location.

Software tracks "mud" weight and chemistry in real time – catching pressure warning signs before fluids start flowing into the well uncontrolled.

And as each section is drilled, it gets lined with steel casing and cemented in place. Evaluation tools verify the cement has set before the crew moves deeper.

For years, skilled operators and engineers managed all of this by reading data, making judgment calls, and adjusting on the fly.

Now, AI is transforming that work. And the results are measurable across every part of the process.

Surface systems no longer just follow preset rules. They learn from live well data, make decisions, and adjust drilling parameters faster and more consistently than a human can.

In one 2024 drilling program, an AI-driven system drilled nearly 50% faster than a manual crew.

Downhole, AI now interprets data from drilling tools in real time and adjusts the well path automatically – keeping the bit in the most productive zone without waiting for a geologist to weigh in.

At a well in Ecuador, an AI system made 25 course corrections along a single well section, each in seconds. That well became one of the best producers in the country.

On the fluids side, machine learning models can flag signs of a pressure imbalance 10 to 12 minutes earlier than conventional monitoring tools.

And for cement evaluation, models that once required a specialist to manually read complex acoustic logs now run automatically, faster, and with better ability to catch errors.

Regular readers know that we've talked about AI changing the industrial sector before. But this is just another example of how physical AI helps companies boost profits.

Many of the companies helping with this transformation in the oil and gas space fall under the energy equipment and services industry. And the Power Gauge currently says this corner of the market is "strong."

Our system rates 58 stocks in this industry. Right now, 26 of them are "bullish" or better. And only one of these stocks get a "bearish" or worse rating.

As I've said previously – you don't have to chase the big names in AI infrastructure to find investing success with this megatrend.

There are plenty of opportunities to profit from AI in less obvious corners of the market... like the companies using physical AI to boost their automation.

Good investing,

Joe Austin

Market View

		# Hld: Bullish Neutral Bearish
Major Indexes and Notable Sectors

Dow 30

+1.82%

S&P 500

+1.70%

120

270

109

NASDAQ

+3.38%

Small Caps

+2.96%

625

922

305

Bonds

+1.30%

Information Technology

+3.73%

— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are Bullish. Major indexes are mixed.

* * * *

Sector Tracker

Sector movement over the last 5 days

Staples

+3.94%

Health Care

+1.32%

Real Estate

+1.17%

Financial

+0.82%

Utilities

+0.25%

Industrials

-0.57%

Materials

-0.77%

Discretionary

-0.82%

Communication

-0.88%

Energy

-2.77%

Information Technology

-5.16%

* * * *

Industry Focus

Aerospace & Defense

Over the past 6 months, the Aerospace & Defense subsector (XAR) has outperformed the S&P 500 by 11.8%. Its Power Bar ratio which measures future potential is Very Strong, with more Bullish than Bearish stocks. It is currently ranked #5 of 21 subsectors and has moved up 3 slots over the past week.

Top Stocks

	CW	Curtiss-Wright Corporation
	DRS	Leonardo DRS, Inc.
	GD	General Dynamics Corporation

* * * *

Top Movers

Gainers
	SNDK	+14.50%
	KLAC	+12.92%
	LRCX	+12.65%
	MU	+11.66%
	AMAT	+11.19%

Losers
	PTC	-12.36%
	ORCL	-8.53%
	ADSK	-7.10%
	GDDY	-6.37%
	ADBE	-6.25%

* * * *

Earnings report

Earnings Surprises

DRVN Driven Brands Holdings Inc.	Q1	$0.30	Beat by $0.06
LEN Lennar Corporation	Q2	$1.31	Beat by $0.08
ADBE Adobe Inc.	Q2	$5.96	Beat by $0.15

* * * *

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