The Hidden Winner of the AI Boom... The Power Utility Industry Busy After a Long Time

As power demand surges due to the artificial intelligence (AI) boom, the utility industry, which builds infrastructure such as power grids, is bustling after a long time. The industry is upgrading power grids in preparation for the increasing electricity demand.

The S&P 500 utility sector fell about 10% last year, showing the worst performance among sectors of the S&P 500 index, which surged 24% that year, but it has risen about 4% so far this year. The utility sector is particularly vulnerable to high interest rates where interest expenses offset earnings, but it is being re-evaluated amid expectations that power-related contracts will increase due to the surge in demand from data centers essential for AI expansion.

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On the 29th (local time), according to foreign media including Bloomberg and The Wall Street Journal (WSJ), the U.S. utility industry is striving to prepare for a historic increase in power demand driven by AI.

Dominion Energy, the largest utility company in the U.S., recently announced plans to build new power plants and transmission lines on the outskirts of the Northern Virginia data center cluster. The Virginia data center cluster, known as the data center alley, handles about 70% of global internet traffic. It is also targeting the construction of a 1,000-megawatt (MW) natural gas power plant in Chesterfield County.

Georgia Power, the largest subsidiary of utility holding company Southern, recently received approval from the Georgia Public Service Commission to expand capacity by 1.4 gigawatts (GW) to meet the surging power demand from data centers. Southern predicts that electricity sales will increase by 6% annually, with 80% of that growth coming from data centers. CMS Energy announced on the 25th that it had signed a new data center contract for 230 MW.

John Ketchum, CEO of NextEra Energy, stated in the earnings announcement on the 23rd, "The U.S. renewable energy and storage market could triple in size over the next seven years."

Some also predict that nuclear power generation in the U.S. will gain strength from AI-driven power demand. Calvin Butler, CEO of Exelon, a public utility company headquartered in Chicago, said, "AI will help increase power demand from data centers in the Chicago area by 900%," adding, "It will potentially require as much power as about four nuclear power plants can produce."

Manju Naglapur, Senior Vice President of Cloud, Application, and Infrastructure Solutions at Unisys, expressed optimism about the utility industry, saying, "Due to all the investments in data centers, power consumption will increase tremendously."

Global investment banks (IB) Goldman Sachs and Morgan Stanley are recommending buying utility-related stocks, which could be potential beneficiaries of the AI boom.

However, an inevitable 'sorting of the wheat from the chaff' among industries is expected, where only utility companies capable of producing enough power to handle AI power demand will profit. Walter Todd, Chief Investment Officer at Greenwood Capital Associates, said, "As a result, some investors are turning their attention to companies that will strengthen power grids to adapt to the new high-energy environment," adding, "The true beneficiaries of data center electricity usage will be companies that benefit from the costs spent on power system upgrades."