As 2025 kicks off, the global energy sector continues to face a volatile and fast-moving landscape, says James Forrest (Group Industry Leader for Energy Transition and Utilities at Capgemini). The pressures due to higher electricity demands, shifts in geopolitical conditions, and digital advancements converge to reassess the way energy is produced, managed, and consumed. The global increase in electricity demand continues, courtesy of the electrification of transport, industrial transformation, and the strong growth of digital infrastructure, such as AI and data centers. To address this, utilities and grid operators have been embracing modernization and demand-response tactics.
Utility CapEx to Increase, Says Fitch Ratings
Fitch Ratings’ neutral outlook demonstrates moderation in inflationary conditions and a subdued commodity environment. Furthermore, a resurgence of growth in sales, mainly among commercial and industrial customers, cost control, and the tax subsidies and transferability provision of the Inflation Reduction Act can be beneficial for the broader sector. The rating agency believes that utility capex is expected to grow at a double-digit rate, fueled by the investments to make the electric infrastructure more resilient to withstand extreme weather events, accommodate renewable generation, and cater to the needs of the expected surge in power demand from data centers.
Power Demand Needs Utility Investment, Opines Goldman Sachs
With data centers contributing to an increasing need for power, the electric grid will need a significant investment. Goldman Sachs Research projects that ~$720 billion of grid spending through 2030 might be the requirement. Such transmission projects might take several years to permit, and then even more to build, resulting in another bottleneck for data center growth in case the regions are not proactive about this considering the lead time, says James Schneider, a senior equity research analyst at Goldman Sachs. The firm expects global power demand from data centers to increase by 50% by 2027 and by 165% by the decade’s end (as compared to 2023).
Economic Times mentioned that the US electric utilities continue to add billions of dollars to spending plans so that they can build new power supplies and bolster the grid as data centers for AI and cloud computing have been fueling energy demand.
Our Methodology
To list the 10 Worst Performing Utilities Stocks to Buy According to Analysts, we used a screener and shortlisted the companies catering to the utilities sector that have performed the worst over the past year, as of February 19. Next, we chose the ones that analysts see significant upside to. Finally, the stocks were arranged in ascending order of their average upside potential, as of February 19. We also mentioned hedge fund sentiments around each stock, as of Q4 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An executive in a power plant control booth overseeing the efficient energy production.
The AES Corporation (NYSE:AES) operates as a diversified power generation and utility company in the US and internationally. The company’s transition towards renewables remains in line with the global trends favoring clean energy solutions. It has been leveraging its current expertise in power generation in a bid to capitalize on the ever-growing demand for sustainable energy sources. Also, The AES Corporation (NYSE:AES)’s diversification throughout different energy sectors offers a degree of stability during market fluctuations.
With governments and corporations prioritizing clean energy solutions to cater to climate change, the company’s strategic focus on expanding renewable capacity might fuel significant long-term growth. The AES Corporation (NYSE:AES)’s diversified portfolio, including utilities, energy infrastructure, and new energy technologies together with renewables, offers a solid foundation for growth. Its asset sales program can improve the company’s financial position and aid its strategic transition to renewable energy.
Notably, while announcing Q3 2024 results, The AES Corporation (NYSE:AES) mentioned that it has announced or closed transactions for roughly three-quarters of its $3.5 billion asset sale proceeds target through 2027. Its PPA backlog, which consists of projects with signed contracts, but which are not yet operational, stood at 12.7 GW, including 4.0 GW under construction.
Overall AES ranks 4th on our list of the worst performing utilities stocks to buy according to analysts. While we acknowledge the potential of AES as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than AES but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
