By Seher Dareen and Vallari Srivastava
(Reuters) – U.S. utilities were optimistic about demand from data centers fueling the boom in artificial intelligence, striking several supply deals in the second quarter, bolstering market expectations for revenue growth throughout the year.
Major utilities including American Electric Power and NextEra Energy signed contracts in the recently ended quarter, while other companies indicated interest from technology firms.
“We’ve started to get some clarity on data center opportunities and the numbers are staggering,” said Timothy Winter, a portfolio manager at Gabelli Funds. As of March 31, the firm owned stakes in six utilities, including PG&E Corp, NextEra Energy and AES Corp.
U.S. utilities have raised their forecasts for cumulative data center electricity demand through 2030 by about 50% since the beginning of the year, said Ben Levitt, deputy director of energy and renewables at S&P Global Commodity Insights.
“The economic development pipeline over the period that we shared through 2028, data centers represent about 25% of that pipeline. As we move toward 2030 and beyond, that 25% grows,” Duke Energy CEO Lynn Good said on a post-earnings call.
Analysts say utilities can deliver significant revenue growth and are now well positioned to meet or exceed long-term growth targets after two years of disappointing performance.
Data from LSEG shows that utility profits are expected to rise 12.4% for the full year, compared with 10.5% for the entire S&P 500.
Analysts expect utilities to provide updates in the coming quarters on their capital spending plans and base rate cases (a regulatory process required to increase service charges) to fund energy infrastructure improvements.
“We think it’s going to be a pretty active second half of the year for the group, not just from a funding perspective but also in terms of fundamentals on an earnings revision basis,” said Nicholas Campanella, head of Barclays’ U.S. energy and utilities research.
Higher temperatures could also boost third-quarter earnings.
Analysts say utilities will outperform other sectors even in a recession, but the impact of the US election remains uncertain.
(Reporting by Seher Dareen and Vallari Srivastava in Bengaluru; Editing by Arpan Varghese and Sriraj Kalluvila)
