Utility Stocks Are Rebounding. Here Are 3 That Could Continue to Soar In 2026.
News Summary
Utility stocks have demonstrated a solid performance in 2025, with a major utility ETF up nearly 10% and many individual stocks showing even stronger gains. The sector is anticipated to perform even better in 2026, driven by the surging electricity demand from AI data centers. The article highlights three utility stocks poised for continued growth in 2026. Constellation Energy's share price has surged due to a resurgence in nuclear energy, bolstered by long-term power purchase agreements with Microsoft and Meta to support data center operations. The company also acquired Calpine for $26.6 billion, a merger expected to close in early 2026, which will significantly boost its earnings. Dominion Energy, while underperforming peers, is strategically positioned in Northern Virginia, a global data center hub, and plans to invest $50 billion over the next decade to meet escalating power demand, targeting 5% to 7% annual EPS growth through the end of the decade. NextEra Energy benefits from operating Florida's largest electric utility and owning a leading clean energy development platform, projecting 6% to 8% annual earnings growth through 2027 and securing a nuclear power deal with Google.
Background
The utility sector experienced a significant rebound in 2025, primarily driven by market expectations of substantial electricity demand from AI data centers. For several years prior, utility stocks had seen subdued performance due to rising interest rates and uncertain growth prospects. The rapid advancement of artificial intelligence has spurred a surge in data center construction. These facilities are energy-intensive and exhibit a continuously growing demand for stable, high-volume power supply. This structural shift in demand is reshaping the investment priorities and revenue models of utility companies. Nuclear energy, as a zero-carbon baseload power source, has regained favor in meeting large-scale, uninterrupted electricity needs, presenting new growth opportunities for some utility firms.
In-Depth AI Insights
What are the long-term implications of hyperscale cloud providers directly contracting for power, and how does this shift the traditional utility business model? - This model signals a shift in power procurement from wholesale markets or standardized retail contracts towards bespoke, long-term direct agreements. - It mitigates power cost volatility for hyperscalers while providing utilities with predictable revenue streams and certainty for capital deployment. - In the long run, this could push utilities to focus more on an "electricity-as-a-service" model, fostering deeper partnerships with large industrial and tech clients rather than solely operating as regulated monopolies. - Utilities with diversified, clean energy assets, particularly nuclear and renewables, will be better positioned as corporate clients increasingly prioritize ESG commitments and reliable baseload power. Given the significant capital expenditure required for grid expansion and new generation projects (e.g., offshore wind, nuclear restarts), what are the potential regulatory and financial challenges, especially under a re-elected Trump administration? - A Trump administration's energy policies typically favor fossil fuels, potentially introducing uncertainty for federal subsidies and approval processes for clean energy projects like offshore wind, though state-level support may persist. - For nuclear energy, there might be a more lenient regulatory environment or incentives if the administration continues to support it as a key component of energy independence and national security, but restarting older facilities still faces technical and safety hurdles. - Massive capital expenditures could lead to utility balance sheet expansion, and if interest rates remain elevated, financing costs will be a significant pressure. Regulatory approval for rate increases to cover these investments will be critical for economic viability. - Given the 2025 economic climate and the Trump administration's preference for deregulation, utilities may face a more complex political landscape at both federal and state levels when seeking returns on their investments. Beyond AI data centers, what other demand drivers or technological advancements could further reshape the utility sector's growth trajectory and investor appeal in the coming years? - Electric Vehicle Adoption: Widespread EV adoption will significantly increase demand for charging infrastructure, especially during peak hours, demanding higher grid capacity and sophisticated distributed energy management. - Industrial Electrification: Many traditional industrial sectors are seeking to electrify processes to reduce carbon emissions and improve efficiency, driving consistent growth in industrial electricity consumption. - Energy Storage Advancements: Decreasing costs and improving efficiency of battery storage will transform grid management, enhance renewable energy integration, and potentially create new service models and revenue streams. - Smart Grids and Digitalization: Investment in advanced sensing, communication, and control technologies to improve grid resilience, efficiency, and security against cyber threats, while optimizing energy use through demand-side management.