Key Takeaways
- Utilities’ strong short-term and long-term fundamental outlook remains intact.
- The surge of new data centers continues to support increases in utilities’ capital investment plans and boost earnings growth.
- Shifting federal policy is driving up investments and maintenance costs across the grid, resulting in higher consumer utility bills.
Utilities stocks finally stopped to catch their breath this spring. After two years of market-beating double-digit returns, the Morningstar US Utilities Index is down 7% since its peak in February, while the market is up 11%. Utilities’ middling 4% year-to-date return, including dividends, trails all but four sectors.
Utilities’ 3% dividend yield is at a multi-decade low and 150 basis points below the 10-year US Treasury yield as of mid-June. This could be a key overhang on utilities stocks if earnings don’t grow as fast as investors expect.
As data centers increasingly contribute to earnings, we now think the sector’s 6%-8% average annual earnings growth could extend beyond 2030. All things considered, we believe the recent pullback reflects valuations that had become too hot and that the sector is now fairly valued.
Data Centers Set to Be a Demand Tailwind for Utilities
The commercialization of artificial intelligence engines represents a transformative source of new growth in electricity demand. Data center infrastructure buildout remains a large driver of utility growth over the next five years and beyond. We assume US data center electricity demand will quadruple by 2030 and grow six times by 2035.
We expect AI-related energy use to continue growing at a slower rate after 2030 due to energy efficiency gains and a shift from AI model trading to inference, or prediction. We expect demand to be spread across regions, with the largest immediate impact in the mid-Atlantic states, with investments potentially pouring into the Midwest, Southeast, and Texas.
We estimate annual electricity demand will average 1.4% through 2030, following more than a decade of little growth in the United States. Electric vehicles and building electrification support our long-term electricity demand growth outlook, with data centers in particular offering the strongest growth environment in decades.
Utilities Highlighting Data Center Demand
- Dominion D: New data centers are a primary reason electricity demand is expected to 5.4% annually in PJM’s Dominion Zone 10-year load forecast. Its data center backlog is at 51 GW.
- Evergy EVRG: Data center contracts and expansions could boost systemwide peak demand more than 15% by 2030.
- PPL PPL: Its data centers are in advanced stages, totaling 40 GW across Pennsylvania and Kentucky.
- Southern Company SO: The firm has a reported 11 GW of data center contracts and 6 GW in the final stages as the Atlanta area turns into a huge data center growth market.
Data Centers Support Best Growth Environment in Decades
Utilities sector capital investment is set to climb 17% in 2026 and 10% in 2027, supporting our estimates for a median 7% growth across the sector. The Edison Electric Institute estimates that utilities will invest $1.4 trillion in 2026-30, up from $1.3 trillion during the prior decade, as utility investment has accelerated. This is up $300 billion from the 2025-29 estimate. Generation, distribution, and transmission investments were expected to be higher in 2025 than in 2024, as utilities ramped up investments in new data centers and manufacturing.
Utilities Highlighting Incremental Capex Needs
- Alliant Energy LNT: 17% increase to $13.4 billion over 2026-29 to support an estimated 12% load growth.
- American Electric Power AEP: Capital plan increased to $78 billion from $54 billion, on top of a 30% increase last year. The firm identified an additional $5 billion-$8 billion in investments.
- Evergy EVRG: A $22 billion investment plan would double its asset base by 2030, up from 2024 levels.
- PG&E PCG: California energy policies and Silicon Valley data centers support a $73 billion investment plan and 9% annual EPS growth.
Policy Certainty Accelerates Solar and Battery Storage Investments
Federal policy certainty is prompting investors to accelerate solar and battery storage investments in 2026. Wind capacity additions are expected to grow slightly in 2026, but still significantly lag solar development.
Initial and approved applications for new renewable energy projects remain robust through 2030, supporting utilities’ long-term growth plans. However, higher equipment and interest costs have consistently increased power prices since 2019.
As Investments Rise, so do Consumer Utility Bills
Utility bills continue to climb faster than other consumer costs. Electricity, which increased by 6.1% in the May Consumer Price Index Report, was the largest contributor to inflation, behind energy costs, during the month.
Average US residential electricity prices rose nearly 8% in the first quarter of 2026 from the year-ago quarter. Most state regulators have allowed utilities to raise base rates during the last two years. We expect utilities will be successful in attaining reasonable rate increases in 2026-27 to cover higher operating costs and infrastructure investment, particularly in constructive regulatory jurisdictions in the Southeast and Midwest.
Customer bill inflation will require utilities to justify additional cost increases and investment plans while ensuring data centers pay their share.
Utilities Sector Top Picks
Alliant Energy
- Star Rating: ★★★★
- We estimate Alliant’s annual earnings growth at the high end of management’s 5%-7% guidance through 2027, and more than 7%-plus growth in 2027 and beyond.
- Alliant’s four-year $13.4 billion capital investment plan is up 24% from its prior four-year plan and is double its 2021 investment plan. We continue to incorporate additional capital in our plan, as none of the potential 2-4 GW of data center development is included in its base plan. Alliant’s investment plan is supported by constructive regulation in Iowa and Wisconsin.
- Alliant has four data center customers supporting 3.4 GW of peak demand, driving a 60% increase in sales growth by 2031. Three data center campuses have started construction, and the fourth has a signed electric service agreement.
American Electric Power
- Star Rating: ★★★★
- AEP’s system peak demand could increase by 63 GW by year-end 2030, driven by load additions in Texas, the mid-Atlantic, and the Southwest. Data centers account for more than 80% of this incremental load.
- AEP plans to invest $78 billion in 2026-30 and has identified an additional $10 billion of possible incremental investment. We expect management to execute on half of this investment within our five-year forecast, given recent strong execution and diversity of AEP’s backlog.
- We forecast 9% average annual earnings growth through 2030, among the highest of its industry peers. This is in line with management’s 7%-9% guidance range from 2026-30, with management recently expecting growth of at least 9% through this period.
DTE Energy
- Star Rating: ★★★★
- For DTE DTE, we assume 7% average annual earnings growth for the next three years, but that could climb to 8% or higher beyond 2030 as the Google data center and potentially additional data centers ramp up. DTE’s $36.5 billion investment plan in 2026-30 doesn’t include a potential $5.0 billion from the Google project.
- Data center revenues could allow DTE to forego customer rate reviews for at least two years while continuing to invest in distribution and transmission growth projects. This potential pause in DTE’s annual rate review cadence could lead to a more constructive decision on its pending $574 million rate increase request.
Portland General Electric
- Star Rating: ★★★★
- We think investors are overestimating the impact of regulatory and policy uncertainties in Oregon. Recent constructive regulatory outcomes support long-term infrastructure growth investment.
- Oregon’s renewable energy mandates offer upside to Portland General Electric’s POR $7.6 billion investment plan in 2026-30, pushing annual earnings growth to the high end of management’s 5%-7%. Winning bids for another 4 GW of projects would be incremental to PGE’s current growth plan.
- Electricity demand around Portland grew 4.7% in 2025 and is on track to grow a similar amount over the next few years, driven by manufacturing and data center expansions. Higher electricity prices for data center customers should boost earnings starting in late 2026.
- Portland General’s wildfire risk is minimal given its urban service territory and temperate climate.