The rapid growth of artificial intelligence (AI) is putting an unprecedented strain on the power grid. One of the primary concerns is the unpredictable nature of AI demand. Unlike traditional industries, AI companies are experiencing exponential growth, making it difficult for utilities to forecast and plan for energy demand. This uncertainty is further complicated as the regulatory framework governing utilities is also a significant obstacle to addressing the energy crisis. Utilities are required to petition regulators for approval to invest in new infrastructure, which can be a time-consuming and uncertain process. This has led to a situation where utilities are unable to invest in the infrastructure needed to support the growth of AI, exacerbating the energy crisis.
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In an interview with CNBC on December 6, Nicholas Campanella, Senior Equity Research Analyst at Barclays, discussed the growing demand for power to support the increasing needs of data centers and the tech industry. Campanella forecasts that the US would face a shortage of resources to meet this demand, making nuclear power an attractive option. Campanella cited the fact that gas turbines are largely sold out between now and 2029, and limited ability to bring on new renewables between now and 2026-2027. Campanella emphasized that the growing demand for power from data centers and hyperscalers would drive up demand for nuclear energy.
Given the recent surge in their price, Campanella highlighted that investors should still buy stocks in utility and independent power-producing companies involved in nuclear power, citing the growing mismatch between supply and demand for power in the late decade. According to Campanella, utility companies that have nuclear assets are well-positioned to capitalize on this trend, particularly those with early site permits or Combined Operating Licenses. Campanella pointed out that the last nuclear renaissance had left several sites with existing permits, which could be leveraged to expedite the development of new nuclear facilities. He forecasts that additional large-scale and Small Modular Reactor (SMR) commitments will be made in 2025.
The growing energy demands driven by the rapid expansion of artificial intelligence and data centers present opportunities for investors, particularly in utility companies. With that in context, let’s take a look at the 12 best utility stocks to buy according to hedge funds.
A row of utility poles and power lines, showing the reach of the electric utility operations.
Our Methodology
For this article, we used the Finviz and Yahoo stock screeners to find the 40 largest utility companies. We then used Insider Monkey’s Hedge Fund database to rank 10 stocks according to the largest number of hedge fund holders, as of Q3 2024. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
12 Best Utility Stocks to Buy According to Hedge Funds
12. Eversource Energy (NYSE:ES)
Number of Hedge Fund Holders: 33
Eversource Energy (NYSE:ES) is a utility company that provides electricity, natural gas, and water to approximately 4.4 million customers across Connecticut, Massachusetts, and New Hampshire. The company operates through several subsidiaries including Connecticut Light & Power, Yankee Gas Services, Public Service of New Hampshire, NSTAR Electric, and NSTAR Gas.
Eversource Energy (NYSE:ES) is taking significant steps to grow its business and drive long-term growth. The company has a robust capital plan in place, which includes investing nearly $24 billion in its regulated electric, natural gas, and water business through 2028. This investment will mainly focus on transmission and electric distribution infrastructure, enabling the company to meet increasing demand and support the clean energy objectives of its operating states. The company also plans to invest nearly $6 billion in transmission and over $10 billion in electric distribution infrastructure, which will increase electrification capacity and support the integration of clean energy resources.
One of the key initiatives driving Eversource Energy’s (NYSE:ES) growth is its Electric Sector Modernization Plan in Massachusetts. The Electric Sector Modernization Plan was recently approved by the Massachusetts Department of Public Utilities and provides a roadmap for clean energy in the state and unlocks an additional $600 million in distribution investments, which will increase resiliency and interconnect clean energy resources. Eversource Energy (NYSE:ES) is also making progress on its Advanced Metering Infrastructure (AMI) program in Massachusetts, which is critical to enabling a clean energy future for its customers. The company has successfully implemented a new customer billing and information system and will begin installing smart meters later this year.
11. Pinnacle West Capital Corporation (NYSE:PNW)
Number of Hedge Fund Holders: 33
Pinnacle West Capital Corporation (NYSE:PNW), headquartered in Phoenix, Arizona, is the parent company of Arizona Public Service (APS), the largest electric utility in Arizona. The company serves approximately 1.4 million customers across the state. Pinnacle West Capital Corporation (NYSE:PNW) generates electricity through a diverse energy mix, including nuclear, natural gas, and renewable resources.
To support its growing customer base and increasing demand for energy, Pinnacle West Capital Corporation (NYSE:PNW) is investing heavily in its infrastructure and technology. The company has announced plans to expand its generation capacity, including the development of new power plants and the integration of renewable energy sources into its grid. Additionally, Pinnacle West Capital Corporation (NYSE:PNW) is leveraging innovative technologies, such as smart thermostats and virtual power plants, to manage energy demand and optimize its grid operations. For example, the company’s Cool Rewards program, which has over 95,000 enrolled thermostats, has helped conserve nearly 160 megawatts of energy during peak periods.
Pinnacle West Capital Corporation (NYSE:PNW) is experiencing significant growth in demand for its services, driven by the expansion of its customer base and the increasing popularity of Arizona as a destination for businesses and residents. This growth has added new customers, including large commercial and industrial users, such as data centers and manufacturing facilities. The company has a pipeline of over 10,000 megawatts of extra high load factor demand as of Q3, largely represented by data centers, which is expected to drive significant growth in the coming years.