US utilities poised to ride data center demand wave in second half

By Seher Dareen and Vallari Srivastava

(Reuters) – U.S. electric utilities sounded bullish on demand from data centers powering the artificial intelligence boom after striking several supply deals during the second quarter, reinforcing market expectations of sales growth through the year.

Top utilities, including American Electric Power (NASDAQ:) and NextEra Energy (NYSE:), signed contracts in the recently concluded quarter while others highlighted interest from technology companies.

“We started to get some clarity about data center opportunities and the numbers are staggering,” said Timothy Winter, portfolio manager at Gabelli Funds. As of March 31, it owned stakes in six utility firms including PG&E (NYSE:) Corp, NextEra Energy and AES (NYSE:) Corp.

U.S. utilities, since the start of the year, have raised their 2030 guidance of cumulative data center electricity demand by roughly 50%, said Ben Levitt, associate director of power and renewables, S&P Global Commodity Insights.

“The economic development pipeline over the period that we’ve shared through 2028, data centers represent about 25% of that pipeline. As we get out to 2030 and beyond, that 25% grows,” Duke Energy (NYSE:) CEO Lynn Good said on a post-earnings call.

Utilities could see meaningful sales growth and are now well-positioned to meet or exceed long-term growth targets after two years of underperformance, analysts have said.

For the full year, utilities’ earnings are estimated to increase 12.4% versus 10.5% for the overall , LSEG data showed.

Over the next couple of quarters, analysts expect utilities to provide updates on capital expenditure plans, as well as base rate cases – a regulatory process required to increase service charges – to help finance energy infrastructure upgrades.

“We think it’s going to be a pretty active second half of the year for the group, not only from a financing standpoint, but from a core rate based in earnings revision standpoint as well,” said Nicholas Campanella, head of U.S. power and utilities research at Barclays.

Hotter temperatures may also boost bottom-lines in the third quarter.

Utilities should outperform other sectors even in case of a recession, but the impact of the U.S. elections remains an uncertainty, analysts said.