U.S. utilities are going through an energy transition by lowering emissions in electricity generation in a phased manner. While a reduction in emissions should boost the prospects of utilities, a rise in demand for electricity from data centers can do wonders.
Per an Electric Power Research Institute (EPRI) report, demand for electricity from data centers will increase substantially from the current levels. Per the report, data centers will consume between 4.6% and 9.1% of U.S. electricity by 2030. Currently, data centers use 4% of the total U.S. electricity load.
The increasing usage of the Internet globally and an expected increase in artificial intelligence (AI) in the future will create a rise in demand for electricity. Data centers operate 24X7, 365 days a year, and electricity demand from these is destined to increase, as AI-based queries need substantially higher power than traditional Internet searches, music and photos. In fact, videos generated through AI also require much more power.
Given the aforesaid scenario, the International Energy Agency predicts U.S. data center electricity consumption to rise from 200 terawatt hours (TWh) in 2022 to about 260 TWh by 2026, making up 6% of total power demand.
Globally, the United States is the largest data center market and per an Arizton Advisory & Intelligence report, investment in them will increase to $148.52 billion by 2029 from $101.59 billion in 2023. Undoubtedly, the expansion and development of data centers will increase the demand for electricity in the United States.
Per a Dgtl Infra report, in the United States, there are over 2,500 data centers. Of these, nearly 50% are located in the primary data center markets like Northern Virginia, Dallas and Northern California. Utilities operating in these regions should gain from the rising demand for electricity from these markets.
Stocks to Gain
Given the promising demand scenario for electricity, investors should closely watch the utilities mentioned below for gains. Each of these stocks have performed better than the industry in the past three months.
Image Source: Zacks Investment Research
Dominion Energy D has operations in Virginia and predicts demand from data centers in the state to grow from 3.3 gigawatt (“GW”) in 2023 to more than 7GW in 2030. This Zacks Rank #3 (Hold) stock is destined to benefit from rising demand from the data centers. The company connected 94 data centers with over 4 gigawatts of capacity over the past 5 years in Northern Virginia. The company expects to connect an additional 15 data centers in 2024.
Vistra Corp. VST has operations in Texas, where it is expected to benefit from rising demand from data centers. Per a McKinsey & Company report, demand for electricity from data centers in Texas can move up by 35 GW in 2030 from the 2023 levels. This Zacks Rank #2 (Buy) company, through its solar and storage projects, can provide clean power to the large load data centers in the region. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PG&E Corp. PCG is the leading provider of electricity to data centers in Northern California. This region has a large number of primary data centers and the company expects demand from these to increase over the long term. This Zacks Rank #2 company plans to invest $62 billion from 2024-2028 in strengthening its infrastructure to meet the rising demand for electricity from the region’s data centers.
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