Utility stocks are doing well – see Wall Street analysts’ top picks here

Utilities stocks have recently turned into leaders, rising more than 4% over the past five days and coming off their best week of the year.

The S&P 500 Utilities ETF (XLU) is up more than 12% since the beginning of the year, a reversal from last year when expensive projects and high interest rates turned investors off of the sector.

Wall Street analysts say the prospect of lower rates later this year and artificial intelligence driving long-term electricity demand has made the defensive end of the market look attractive.

“Excitement around AI has led many investors to move beyond the meteoric rise of stocks like Nvidia (NVDA) and Super Microcomputer (SMCI),” Adam Turnquist, chief technical strategist at LPL Financial, wrote in a recent note. “We’re looking for the next big thing.”

Amid the rapid growth of data centers, energy consumption is expected to increase dramatically.

In addition, energy demand is expected to surge due to manufacturing reshoring, with battery and chip manufacturing plants requiring more power, and the proliferation of charging stations for electric vehicles.

“Electricity demand [in the US] “For the first time in 15 years, it’s actually growing,” Neil Culton, senior equity analyst at Wells Fargo, told Yahoo Finance.

Constellation energy (C.E.G.)

Constellation Energy is the largest owner of nuclear power plants In the United States. The Baltimore-based company has benefited from the government’s push to transition to green energy and increased demand for electricity from data centers.

Constellation stock has risen more than 85% since the beginning of the year as the company projects base earnings to grow at least 10% annually over the course of the decade.

“This is definitely a growth stock and it’s appealing to growth investors,” Well Fargo’s Carlton said.

Analysts say Constellation generates electricity for about $25 per megawatt-hour, but the government’s anti-inflation laws allow a lower sales price of $45 per megawatt-hour, meaning a minimum margin of $20 per megawatt-hour. It is emphasized that this is ensured.

“There’s no limit to the profits they can make,” Carlton said.

Wall Street is also bullish on the possibility that Big Tech could use constellations to build massive data centers at nuclear facilities.

“The appeal of Constellation’s unregulated nuclear power is that they can build a data center on site land and connect directly to a data power plant there to provide power,” Carlton said.

During the company’s earnings call, CEO Joseph Dominguez emphasized that hyperscalers require large amounts of energy.

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“We’re going to need data centers that are much larger and larger in terms of megawatts than what currently exists in the market,” Dominguez said.

“The data economy and constellation nuclear energy go together like peanut butter and jelly. That’s why we work with multiple clients, some of the biggest, most well-known companies you know, to meet their needs. “We are in advanced discussions regarding this,” he added.

Constellation has been operating as an independent energy provider since 2022 after being spun off from utility giant Exelon (EXC). The company has been pursuing share buybacks and recently increased its dividend ahead of Thursday’s earnings release.

Analyst recommendations for the stock are 8 “buy”, 5 “hold”, and 0 “sell”.

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With a market capitalization of $147 billion, the company is one of the nation’s largest power producers. Although NextEra owns a regulated utility in Florida, investors are more interested in NextEra Energy Resources, the company’s non-regulated division business involved in renewable energy development in the United States.

“The demand for renewable energy is going to explode over the next five to 10 years,” Carlton said.

NextEra expects annual earnings growth of 6% to 8% through 2026.

The company’s CEO highlighted the surge in power demand for data centers and the domestic relocation of manufacturing capacity to the United States as reasons for the surge in demand.

CEO John Ketchum told analysts in April that “the re-domestication of U.S. industry, supported by public policy, will drive further demand for electricity.”

The stock price has increased about 20% since the beginning of the year. This stock has 17 analyst recommendations for buy, 5 recommendations for hold, and 1 recommendation for sell.

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Among regulated utilities, Southern Company has been one of the best-performing companies in the utility sector year-to-date, with its stock price up more than 10%.

The company is benefiting from a data center it is considering building in an area of ​​Georgia that uses a lot of electricity.

Last year, Georgia Power, a subsidiary of Southern, debuted the first nuclear reactor plant built from scratch in decades. Currently, four nuclear facilities are in operation.

The Atlanta-based energy provider recently announced a 14% increase in first-quarter earnings per share compared to the same period last year. Sales to data centers this quarter increased by more than 12% compared to the same period in 2024.

“This is about making history. These are the first new nuclear facilities built from the ground up here in the United States in more than 30 years, and we’re proud to be the company that did it,” said Southern’s top executive. CEO Chris Womack said at a press conference. The company’s latest financial report.

Southern stock is up 9% since the beginning of the year. This stock has 11 analyst recommendations for buy, 7 recommendations for hold, and 3 recommendations for sell.

Ines Ferre is a senior business reporter at Yahoo Finance. Follow her on Twitter @ines_ferre.