AI data centers are going to need a lot of power. These utility stocks could benefit, Evercore ISI says

Published Thu, Apr 4 202412:04 PM EDTUpdated Thu, Apr 4 20241:41 PM EDT

Artificial intelligence data centers will require plenty of electricity – and that could bode well for a select group of utility stocks, Evercore ISI said. Data centers are expected to account for 6% to 7.5% of total U.S. total electricity consumption by the end of the decade, up from their current level of 2.5%, Evercore analyst Durgesh Chopra wrote, citing McKinsey & Co. He expects the power load from data center and/or AI to be met 50% with gas, 25% with solar and 25% with wind. "In that scenario we estimate $50-$75B in investment to satisfy generation, transmission and distribution needs through 2030," Chopra wrote. He listed a group of utility plays that could benefit from the increased demand for power. Baltimore-based Constellation Energy was highlighted by Evercore, which rates the stock as outperform. The firm hiked its price target to $198 from $184, suggesting 4% upside from Wednesday's close. Constellation produces energy through nuclear power plants, along with hydro, wind and solar — and it has been a standout performer in the utilities sector, up an eye-popping 61% in 2024. It offers a dividend yield of 0.7%. CEG YTD mountain Constellation energy stock has climbed nearly 63% in 2024. Moreover, the analyst forecasts that full-year 2026 earnings per share could see as much as 50% upside if Constellation can successfully deploy its nuclear power capabilities to address AI data center needs. Vistra also made Evercore's list, with the firm giving it an outperform rating. Evercore also hiked its target price on the electric company to $79 from $72, suggesting upside of more than 7%. The stock offers a dividend yield of 1.2%. VST YTD mountain Vistra stock has climbed more than 90% in 2024. Despite Vistra deriving much of its strength from residential customers through sales of natural gas and retail electricity, Chopra says the company's nuclear capabilities make it a key player to watch for powering data centers. "Vistra is one of the largest competitive power generators in the U.S. with ~41 GW of capacity including the 5.4GW of nuclear generation making them the second largest producer of unregulated nuclear energy in the country," the analyst said. Other utility stocks that Evercore likes include Public Service Enterprise Group and AES Corp .