In 2024, the utilities sector saw a significant surge, climbing nearly 20% due to heightened investor interest in the artificial intelligence (AI) trend, with notable gains from companies like Vistra Corp. and Constellation Energy. Vistra’s shares skyrocketed nearly 260%, while Constellation rose over 90%. Talen Energy also benefited, increasing more than 200%, driven by agreements to supply power to major data centers for Amazon and Microsoft. Despite this growth, Morningstar’s Travis Miller cautioned that valuations for some unregulated power producers may be overvalued relative to their long-term growth potential. Miller suggested investors focus on midcap utilities, which could provide attractive growth opportunities, especially as even minor demand increases greatly impact earnings. Companies such as NiSource, WEC Energy, and Evergy were highlighted as potential picks, benefiting from data center deals and low natural gas prices. NiSource has a strong dividend yield and significant growth opportunities, while WEC Energy has recently expanded its contracts with Microsoft. Evergy also announced major deals with tech companies, representing substantial load opportunities. Overall, midcap utilities appear set to capitalize on the growing energy demands driven by data centers, offering a combination of growth and income potential for investors.
