U.S. electricity demand is exploding higher as AI focused data centers currently consume as much power as Brazil, and next year will consume as much as Japan.
We’ve explored several ways to invest and profit from this inevitable picks and shovels AI trend.
We’ve explored old school utility stocks like Southern (NYSE: SO), Dominion (NYSE: D) and Constellation (NYSE: CEG). Each has its merits.
Southern (the parent company for Georgia Power) just completed the largest nuclear power project in the U.S. in decades.
This means Georgia Power will have no problem meeting the power needs of the 25 or so data centers coming online in Atlanta. Southern shares are up 12% this year.
Dominion (NYSE: D) serves the biggest data center market in the world — Northern Virginia. Shares are up around 12% this year too. Dominion currently supplies 94 data centers and 15 new ones will come online this year.
Constellation (NYSE: CEG) is the biggest nuclear power operator in the country. Shares are up 73% this year. It recently crushed earnings estimates due to surging demand. It reported $1.82 earnings per share when analysts expected $1.38.
Data center owners like Microsoft and Amazon want to build data centers as close to nuclear generation plants as they can. They’d plug in directly and avoid the grid altogether if they can.
Constellation nuclear generation is running at 93% capacity and it is planning to add nuclear capacity at existing sites with small modular reactor (SMR) technology.
There’s been a lot of attention on SMR development lately. OpenAI and ChatGPT cofounder Sam Altman backs one SMR company, Oklo (NASDAQ: OKLO). It went public via a SPAC at $16.60 a share. SPACs don’t often perform well, and Oklo is trading around $8.
NuScale (NYSE: SMR) is the only SMR company with approval from the Nuclear Regulatory Commission.
Price Limits for Utilities
If there’s a knock on utility stocks, it is that their pricing is regulated and any price hikes have to be approved by regulatory boards. Utilities revenue and profits will benefit from demand. But they may not be able to raise prices to capitalize as much on demand.
There are some power companies that don’t have this problem.
Brookfield Asset Manager (NYSE: BEP) is one of the biggest renewable energy companies in the U.S. Brookfield just signed the biggest renewable power deal in history when it agreed to supply Microsoft with 10.6 gigawatts of power between 2026 and 2030. Brookfield shares ramped from $21 to $27 after the deal with Microsoft was announced.
That’s pretty good stock price performance for one deal. But the biggest winner in the power supply market is Vistra (NYSE: VST)
The 52-week range for Vistra is $25 to $107. The stock’s year-to-date gains are 112%.
Vistra is listed as a utility company with nuclear, coal, natural gas and solar power generation capacity. And it does have a customer base in Texas. But Vistra also operates as an independent power producer. That gives it the opportunity to sell power into the grid at market rates.
And if you know anything about the Texas power market, you know it is vulnerable to surge pricing at various times during the year.
Utilities and power generation stocks typically don’t do well when interest rates are high. It’s a capital-intensive business and high borrowing costs eat into the bottom line. The stocks have pulled back over the last couple of weeks as the expectations for rate cuts keep getting pushed out further into the future.
Rates will come down at some point. And the power demands from data centers are only going higher.
Godspeed,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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