U.S. electric utilities are expressing strong confidence in rising demand from data centers, fueled by the ongoing artificial intelligence (AI) surge. Several major utilities secured supply agreements during the second quarter, reinforcing market expectations for continued sales growth throughout the year.
Prominent utilities such as American Electric Power and NextEra Energy (NEE.N) have signed significant contracts, while others have noted increased interest from technology firms.
“We’re beginning to see the potential scale of data center opportunities, and the figures are remarkable,” stated Timothy Winter, portfolio manager at Gabelli Funds, which held stakes in six utility companies as of March 31, including PG&E Corp (PCG.N) and AES Corp (AES.N).
Since the start of the year, U.S. utilities have increased their 2030 projections for cumulative electricity demand from data centers by approximately 50%, according to Ben Levitt, associate director of power and renewables at S&P Global Commodity Insights.
Lynn Good, CEO of Duke Energy (DUK.N), mentioned on a post-earnings call that data centers account for about 25% of their economic development pipeline through 2028, with expectations for this percentage to rise as they look towards 2030 and beyond.
Analysts suggest that utilities are now poised for significant sales growth, potentially meeting or exceeding long-term growth targets after two years of underperformance.
For the full year, utility sector earnings are projected to rise by 12.4%, compared to a 10.5% increase for the broader S&P 500, according to LSEG data. In the coming quarters, analysts anticipate updates from utilities on capital expenditure plans and base rate cases, which are necessary for financing energy infrastructure upgrades.
“We anticipate a busy second half of the year for the sector, not only in terms of financing but also in revising core rate bases and earnings,” remarked Nicholas Campanella, head of U.S. power and utilities research at Barclays.
