- Boring utility stocks are being eyed as the next big beneficiary of the AI boom.
- This is because the large-scale expansion of AI data centers is leading to a sharp increase in electricity demand.
- Goldman Sachs highlights four utility stocks rated buys that will benefit from the AI boom.
Goldman Sachs says the most boring areas of the stock market are being awakened by the AI boom, and investors should pay attention now.
The bank highlighted utility stocks as big beneficiaries of the AI boom due to a surge in power demand from AI-focused data centers.
“Investor interest in the topic of the AI revolution is not new, but the utilities, renewable power generation, and industrial sectors will need investments and products to support this growth,” Goldman Sachs said in a note late last month. “We believe the downstream investment opportunities in China are undervalued.”
Most electric utilities are regulated monopolies, and their regulations typically result in annual growth rates in the low to mid-single digits, often driven by small rate increases every few years. This is a reliable sector of the stock market that has historically provided investors with low but steady growth.
But traditional thinking around utility stocks is being upended, thanks to the growing adoption of AI that is leading to a surge in electricity demand.
Goldman Sachs predicts that data center power demand will grow at a CAGR of 15% from 2023 to 2030, and by 2030, data centers will account for approximately 3% of total U.S. power demand. It will go from 8% to 8%.”
This is evidenced by the recent price performance of utilities, with the sector up about 11% since the beginning of the year, making it the third best-performing sector so far this year, behind the technology and communications services sectors. There is.
These are four utility stocks that Goldman Sachs rates as buys, in part because of their exposure to AI-powered electricity demand.
Excel Energy (XEL): “Regulated electric utilities exposed to power generation should support MISO’s data center growth.”
NextEra Energy (NEE): “Uniquely placed replayable segments for AI data loads and available interconnection queues.”
Southern Co., Ltd. (SO): “Regionally regulated utilities are in a position to respond to increased data center loads through generation spending.”
Sempra (SRE): “Power companies are making significant capital investments in T&D to support data center growth in Texas.”
“U.S. electricity demand is likely to experience growth not seen in a generation. U.S. electricity demand has increased 2.4% over eight years for the first time since the beginning of this century, and the On average, electricity generation will grow by less than 0.5%,'' Goldman Sachs said.
As such, most investors are focused on acquiring companies directly involved in AI, such as semiconductor companies Nvidia, AMD, and Supermicrocomputers, while public utilities are driving unprecedented growth in AI-related power demand. Gaining exposure indirectly through operating companies may be beneficial. , according to Goldman Sachs.
