Data center growth drives utility demand

PARAGRAPH 1 --- What happened: Utility stocks, traditionally known for defensive characteristics, are experiencing a shift due to the data center boom. Microsoft and Alphabet's hyperscale data center expansions are driving electricity demand, benefiting utilities like Vistra, Alliant Energy, and Contact Energy. Vistra, for instance, is positioned for rising grid demand and trades at a reasonable valuation despite potential headwinds. Contact Energy's FY26 profit climbed, partly due to data center partnerships. Constellation's CEO, however, noted that existing power plants will remain crucial for data center supply.

PARAGRAPH 2 --- Market impact: The data center boom is reshaping the utility sector. Utilities with exposure to data centers are seeing increased earnings growth and resilient demand. This trend is pushing up valuations for companies like Vistra. Meanwhile, existing power plants remain integral to the supply chain, affecting utilities like PSEG, which is exploring data center supply opportunities in PJM's bilateral contracting process.

PARAGRAPH 3 --- What to watch next: Investors should watch for Alliant Energy's full-year 2026 earnings, expected to be supported by data center growth. Contact Energy's partnership with CDC for a potential 250 MW data center is also a key development to monitor. Additionally, regulatory decisions around data center self-supply generation, as per the Ratepayer Protection Pledge, could impact utilities' data center strategies.