We recently published a list of 10 Best Performing Utilities Stocks So Far in 2025. In this article, we are going to take a look at where Constellation Energy Corporation (NASDAQ:CEG) stands against other best performing utilities stocks so far in 2025.
The utility investors have had a strong 2024. Morningstar reported that utilities rose by 27%, including dividends, marking its best performance since 2000. The 2024 rally mitigated the 2023 woes, resulting in the fair valuation of utilities. Notably, the valuations fully showcase the AI-related energy demand growth potential. Even though utilities have outperformed the market in 2 of the last 3 years, the sector’s 7% average return since 2021 remains in line with the sector’s 40-year average.
Growth Drivers for Utilities in 2025
As per Fidelity, America is at an inflection in power demand, with a favourable outlook for utilities. The electrification and the growth of AI continue to act as tailwinds for exponential growth in the sector. The technology of AI has been acting as a significant boost to predicted energy demand over the upcoming decade. AI needs significant computational power, storage space, and low-latency networking for training and running models. Such applications are generally hosted in data centers. With AI becoming more common, the energy demands from data centers are expected to grow exponentially, which can translate to increased earnings growth for utilities.
As a result of such trends, the energy demand is expected to grow more than 38% over the upcoming 2 decades, believes Fidelity. Regulated utilities are required to build new power plants in a bid to satisfy this demand surge. With reserve margins tightening, power prices for existing energy are also expected to increase. Therefore, the investment firm believes that the transition of power fleet to electrification and the growth of AI are durable trends, which are expected to support utilities for years to come.
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Investing in Utilities
Morningstar believes that income-focused investors have favored utilities because of their stable cash flows and high dividend payout ratios. The firm believes that utilities are a defensive play for investors during economic downturns, providing steady returns even during the volatile market. Furthermore, utilities’ focus on sustainable energy investments and grid modernization results in creating opportunities for long-term growth, further strengthening their appeal as income-generating assets.
Utility companies that effectively steer through regulatory landscapes, make investments in infrastructure, and embrace innovation are expected to sustain their competitive advantages. Numerous factors are expected to drive renewed growth in electricity demand, including the proliferation of EVs, and the surge of data centers driven by advancements in AI. As per Morningstar, such factors reflect strong opportunities for utilities to expand services and infrastructure to cater to dynamic electricity needs.
Our Methodology
To list the 10 Best Performing Utilities Stocks So Far in 2025, we used a screener to shortlist the stocks catering to the utility sector. Next, we chose the stocks that have increased the most on a YTD basis. Finally, the stocks were ranked in ascending order of their YTD performance, as of February 19. We also mentioned hedge fund sentiments around each stock, as of Q4 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. 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).
A close up of a wind turbine producing electricity as the sun sets.
Constellation Energy Corporation (NASDAQ:CEG)
% Gain on a YTD Basis: 32.5%
Number of Hedge Fund Holders: 85
Constellation Energy Corporation (NASDAQ:CEG) generates and sells electricity in the US. The company was awarded over $1 billion in combined contracts by the U.S. General Services Administration (GSA) to supply power to over 13 government agencies and perform energy savings and conservation measures at five GSA-owned facilities in the National Capital Region. Constellation Energy Corporation (NASDAQ:CEG)’s retail subsidiaries will provide the services to the GSA.
The energy sector continues to witness a significant shift towards clean and renewable sources, aided by global efforts to combat climate change and the higher demand for sustainable power solutions. Constellation Energy Corporation (NASDAQ:CEG)’s emphasis on carbon-free generation aligns well with this trend, mainly as industries such as AI and data centers need constant power supply. The strong interest in round-the-clock renewable power, highlighted by the Microsoft deal, reflects a new market segment for energy providers.
The electrification of industries (such as AI data centers, EVs, and industrial decarbonization) continues to fuel increased electricity demand. Fred Alger Management, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Constellation Energy Corporation (NASDAQ:CEG) is the largest producer of clean energy in the U.S., with 32,400 Megawatts of capacity, approximately 67% of which is nuclear generated. Its nuclear, hydro, wind, and solar facilities provide 10% of all clean energy on the U.S. grid and 22% of its clean baseload power. We believe the company stands to benefit from the increasing electrification of the U.S. economy. The rise of electric vehicles, data centers, and reshoring of American manufacturing is driving U.S. electricity load growth for the first time in nearly two decades. During the quarter, shares detracted from performance due to a combination of regulatory challenges and broader industry pressures. The Federal Energy Regulatory Commission (FERC) rejected an interconnection agreement between Talen Energy’s Susquehanna nuclear plant and an Amazon data center, raising concerns about similar deals and regulatory hurdles for the nuclear industry. While this event was outside Constellation’s control, we believe it does not alter the thesis that tight power markets should drive higher pricing for the company. In our view, the FERC rejection also underscores anticipated tightness in mid-Atlantic power markets, reinforcing the long-term value of Constellation’s under-monetized assets.”
Overall, CEG ranks 3rd on our list of best performing utilities stocks so far in 2025. While we acknowledge the potential of CEG as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than CEG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.