Utilities Take Center Stage as AI Boom Shifts Focus

The AI boom may be shifting its focus from chipmakers to utility companies. According to BCA Research, the world is entering an 'Age of Electricity,' with global electricity consumption expected to rise approximately 40% by 2035. However, the research firm notes that the bottleneck in the grid has shifted from power generation to transmission networks.

This change creates a new opportunity for investors, who are no longer looking at chipmakers like Nvidia as the primary beneficiaries of the AI boom. Instead, they are focusing on traditional utility companies that supply electricity to data centers and other facilities.

The scale of the problem is now measurable, with BloombergNEF raising its forecast for U.S. data center electricity demand by 83%, from 106 gigawatts to 194 gigawatts over the next decade. The International Energy Agency estimates that about one-fifth of the data center capacity planned worldwide through 2030 is at risk of delay due to grid constraints.

BCA Research has identified five utility stocks that stand out: Atmos Energy Corporation (NYSE:ATO), American Electric Power Company, Inc. (NASDAQ:AEP), Consolidated Edison, Inc. (NYSE:ED), NextEra Energy, Inc. (NYSE:NEE), and Edison International (NYSE:EIX). These companies offer a unique opportunity for investors to gain exposure to the AI boom without buying high-multiple chip stocks.

However, there are risks associated with investing in utilities, including higher financing costs, regulatory delays, and permitting constraints. Utilities must spend heavily before those investments generate returns, which can slow the process.