Utility Stocks: Growth Expectations Collide with AI Efficiency Concerns
Power providers' stock performance has mirrored the industry's growth, with the S&P Utility Index rising 20% in 2024. Key players like Vistra and Constellation Energy have experienced significant gains.
However, the momentum has been halted by DeepSeek's R1 release, raising questions about AI efficiency and the potential for reduced power demand. Lofty valuations have resulted in sharp declines.
Despite the volatility, some analysts remain optimistic about data center demand. Bank of America analysts believe the sell-off is an overreaction, while acknowledging the risks of efficiency gains.
Meanwhile, hyperscalers like Alphabet, Microsoft, and Amazon continue to expand their data center operations, driving demand for power. If their spending plans translate into agreements with utilities, the sector could see a resurgence in growth.