Power Providers' Stock Performance: A Roller Coaster Ride
The S&P Utility Index soared 20% in 2024, with Vistra and Constellation Energy leading the surge. Vistra, with both electricity generation and retail operations, skyrocketed 258%, surpassing Nvidia.
This growth was driven by expectations of increased demand for AI data center power. Microsoft's commitment to purchase power from Three Mile Island amplified this optimism.
However, the sector's trajectory took a sharp turn with DeepSeek's R1 release. It raised questions about AI efficiency, potentially reducing power consumption. Constellation opened 20% below its Friday close.
Analysts have raised concerns about utility stocks being overvalued. Anthony Crowdell of Mizuho notes the "tourist" effect of investors pushing valuations too high.
Despite the sell-off, some analysts maintain that data center demand will continue. Ross Fowler of Bank of America acknowledges the potential for efficiency gains, but believes hyperscalers will continue data center expansion.
Microsoft's CFO, Amy Hood, has identified power as a constraint. This has investors flocking back to utility shares, but their sustainability depends on actual agreements with tech giants.