U.S. electric utilities are optimistic about the demand from data centers that power the artificial intelligence boom. Companies such as American Electric Power and NextEra Energy signed contracts in the second quarter, indicating a positive growth trajectory for the sector. Utilities are seeing increased interest from technology companies, with some expecting significant sales growth through the year. Analysts predict that utilities are well-positioned to meet or exceed their long-term growth targets after facing two years of underperformance.
Utility companies have raised their 2030 guidance for cumulative data center electricity demand by about 50% since the start of the year. Data centers are expected to represent a significant portion of the economic development pipeline in the coming years, with Duke Energy CEO Lynn Good stating that they could make up around 25% of the pipeline by 2028 and even more beyond. This growth in demand is expected to lead to meaningful sales growth for utilities, outperforming other sectors and potentially even boosting earnings in the face of a potential recession.
According to LSEG data, utilities are estimated to see a 12.4% increase in earnings for the full year, higher than the expected 10.5% increase for the overall S&P 500. Analysts anticipate that utilities will provide updates on capital expenditure plans and base rate cases in the coming quarters, which will help finance energy infrastructure upgrades. This increased activity within the sector is expected to lead to higher earnings revisions and core rate-based earnings in the second half of the year, making it a potentially active period for the industry.
One factor that could impact the sector is the outcome of the U.S. elections, with analysts noting that the uncertainty surrounding the results could affect utilities’ performance. However, even in the face of this uncertainty, utilities are predicted to outperform other sectors due to their stable nature. Additionally, hotter temperatures in the upcoming third quarter could also contribute to boosting the bottom lines of utility companies, providing further support for their positive outlook.
Gabelli Funds’ portfolio manager Timothy Winter highlighted the significant opportunities provided by data centers, with numbers indicating substantial growth potential for utilities. S&P Global Commodity Insights’ associate director Ben Levitt noted that the increase in demand from data centers has led utilities to raise their 2030 guidance, reinforcing the positive outlook for the sector. Overall, the bullish sentiment from utilities and analysts suggests that the industry is well-positioned for growth and increased earnings in the coming quarters.
