Stock Market Trends

Four Utility Stocks to Watch as AI Momentum Cools Down

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By David Engle
Published December 2, 2025 |  Updated December 2, 2025
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Describing the AI market is tricky these days. We're probably not quite in bubble territory yet. But the market does show signs of resetting. Just look at the recent performances of Nvidia (NVDA), Palantir Technologies (PLTR), and Microsoft (MSFT). After riding high for the better part of three years, prices are declining while volatility is growing.

  • Nvidia shares dipped 14.5% from a record high of $207.04 on October 29 to a November 28, low of $177.

  • Microsoft's October 28 closing price was an all-time high of $542.07. By November 21, the price was down to $472.12... a drop of 13%.

  • And Palantir hit a record closing high of $207.18 on November 3. It closed at $154.85 on November 21... a 25% decrease.

Between overvaluation concerns and jitters around massive capital expenditure ("capex") on AI, it appears we've entered a pullback in the AI trade.

Some analysts feel this is the course correction or healthy reset that the AI market needs... not the bursting of a bubble or the end of a boom. It's not like investment or spending on AI has stopped. AI stocks are just volatile right now.

What's not volatile is demand for the infrastructure required to power AI and its massive data centers. In fact, without electricity, there is no AI. And that's why utility stocks are a safer bet for investors.

This AI pullback benefits utility stocks in a couple of ways:

  • By reinforcing utilities' traditional role as "safe haven" or "defensive" stocks. Because utilities will always be in demand, no matter what the overall market looks like.

  • And by highlighting the utilities sector's symbiotic relationship with tech. Even if investors back off from more speculative AI chips and software stocks, utility companies powering the data centers will stand out as less-volatile AI drivers.

Today, we'll cover four utility stocks worth watching and why they stand to benefit from the AI pullback.

AI's Hidden Infrastructure: Why Utilities Are a Growth Catalyst

As Joel Litman, Chief Investment Strategist for Altimetry, wrote in the Altimetry Daily Authority:

U.S. electricity demand was flat for more than a decade. But now, it's climbing again... and fast.

Consulting firm ICF expects total consumption to jump roughly 25% by 2030. That would be the sharpest rise since the 1990s.

Data centers alone could triple their power draw by 2035, accounting for nearly half of new load growth this decade.

AI data centers require a ton of energy because AI workloads need power-intensive chips and servers. Pew Research data projects AI data center electricity consumption in the U.S. to grow by 133% to 426 terawatt hours ("TWh") by 2030.

Those 426 TWh are enough to power about 38 million average American homes for a year. Or more than 110 million electric vehicles for a year.

Here's what matters to investors. Even if AI stock valuations are being corrected, the physical infrastructure of AI data centers remains in high demand. And that represents a comforting level of stickiness in a utility industry that's typically slow to grow.

The fact that utility companies are signing huge deals with AI hyperscalers is enough to make investors pay attention.

  • Constellation Energy (CEG): Signed long-term power purchase agreements ("PPAs") with social media giant Meta Platforms (META) and tech titan Microsoft. That includes the entire output of Constellation's 1,121-megawatt ("MW") Clinton Clean Energy Center nuclear plant to power a Meta data center.

  • NextEra Energy (NEE): Agreed to a 25-year deal with Alphabet (GOOGL) to acquire 3 gigawatts ("GW") of energy from a redeveloped nuclear facility.

The bottom line? Utilities provide another avenue into the AI trade without owning the obvious AI names like Nvidia, Palantir, or Microsoft.

Stability and Income: The Traditional Appeal of Utilities

AI has transformed utility stocks into major growth opportunities. This is unfamiliar territory for utilities, which are typically viewed as safe, defensive stocks that may not experience much growth... but will also remain steady and deliver generally solid performance and consistent returns.

Right now, utility stocks are a little bit of both. Many have steady demand from residential homes, businesses, etc., while also seeing new and rising demand for data-center customers. As a result, the S&P 500 utilities sector has outpaced the S&P 500 year to date. The Utilities Select Sector Fund (XLU) has delivered a total, year-to-date return of 18.8%. That compares with 17.4% from the broader S&P 500.

Another traditional benefit of utilities is their reliable dividends. The S&P utilities sector has delivered an average dividend yield of 3.7% over the last 15 years. With stocks in that sector climbing higher, that yield has come down—about 2.6% right now. But that still beats the approximate 1% yield from the S&P 500.

That track record makes utilities an appealing option during pullbacks, when investors shift from higher-risk stocks to more stable sectors.

Of course, there is more to consider when determining which utility companies are worth an investment. Let's have a look at four public utility companies that should be on your radar right now.

Constellation Energy (CEG)

Constellation Energy is the country's largest producer of clean, carbon-free energy through its generation of nuclear, solar, and wind power. The Baltimore, Maryland-based company is a leading merchant energy supplier of electricity, natural gas, and renewable energy for millions of American residential, commercial, and public sector customers.

Nuclear energy is key for Constellation. Not only is it the company's largest source of clean, carbon-free power (not to mention the country's largest nuclear fleet)... it also satisfies the growing demand for reliable, zero-emission energy from hyperscalers operating AI data centers.

This demand has resulted in lucrative PPAs for Constellation, including the 20-year deal with Meta we mentioned earlier. My colleague Nick Koziol wrote about this agreement in June, noting how this deal impacted CEG stock...

The news of the partnership sent Constellation Energy's stock briefly soaring... CEG shares jumped more than 8% when markets opened, before giving up those gains over the rest of the day. Still, Constellation stock is up nearly 50% over the past year, and it's close to making a new all-time high.

And CEG's stock has more than tripled since ChatGPT's launch in November 2022.

Constellation also agreed to a long-term PPA that will restart Three Mile Island's Unit 1 reactor (since renamed the Crane Clean Energy Center) to provide carbon-free power to Microsoft's AI data centers.

Constellation's revenue has been strong in 2025. The company reported $24.841 billion of Trailing Twelve Months ("TTM") revenue in its Q3 2025 earnings call. That's an increase of more than 3.5% year-over-year ("YoY"). Those strong financials help its Stansberry Score, earning a "B" in that category.

CEG's valuation has fluctuated, however, which is why it grades a "C." Its enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio spiked to 15.92 times in Q3 2025, up from 10.23 times in Q1. But its return on assets ("ROA") dropped from 14.42% in Q4 2024 to 12% in Q3 2025.

Constellation is also projecting very high capex of around $6.5 billion for 2025 and 2026 to go toward nuclear fuel acquisition, growth projects, and upgrades to its existing fleet. That may bode well for future performance. But for the near-term, it's a big reason why Constellation scores poorly in "capital efficiency" with a grade of "D."

Vistra (VST)

Vistra offers an array of power generation facilities – natural gas, nuclear, solar, battery storage, and coal – in high-demand energy areas like its home state of Texas, as well as regions within PJM (a Regional Transmission Organization that handles wholesale electricity in all or parts of 13 states). Like Constellation, Vistra provides electricity to millions of residential, industrial, and commercial customers across the U.S.

Vistra's high-profile PPAs include deals with Amazon and Microsoft for their solar facilities and a 20-year PPA for its Comanche Peak Nuclear Power Plant with an unspecified hyperscaler. Vistra also finalized the acquisition of around 2.6 GW of natural gas power from Lotus Infrastructure Partners in October. This deal expands Vistra's portfolio with seven natural gas power plants in key American markets.

Vistra's 2025 performance has been mixed. Its $1.75 earnings per share beat analyst estimates in Q3. And its adjusted EBITDA increased nearly 10% YoY to $1.581 billion. But its $4.97 billion in revenue fell short of expectations and was down 21% YoY.

Despite its recent inconsistency, our Stansberry Score ranks Vistra firmly within our top 600 (out of more than 4,600) stocks, with a strong "B" score. This is driven by excellent valuation and above-average financials and capital efficiency.

Vistra is well-positioned to benefit from the surge in energy demand, making it a must-watch for investors considering utility stocks.

NRG Energy (NRG)

NRG Energy generates and sells natural gas and electricity to serve millions of residential, commercial, and industrial customers. Though NRG owns and operates power-generation facilities that use coal, natural gas, solar, wind, and battery storage, the company is shifting toward a focus on cleaner energy sources. Its goal of becoming America's leading green energy producer has the company investing heavily in solar, wind, and other renewable energy sources.

Like the other utility companies we've covered, NRG has secured a few high-profile PPAs. In 2020, NRG and the City of Houston entered a PPA where the city purchases 100% renewable electricity from NRG.

More recently, NRG signed a 295 MW long-term power agreement to serve new data centers in Texas. NRG intends to scale the deal to 500 MW and eventually 1 GW across additional sites. And in a shrewd strategic move, NRG will likely finalize 13 GW of gas assets from LS Power sometime in 2026. That deal will greatly expand its energy portfolio, which should generate more PPAs in the near future.

NRG is enjoying a profitable 2025 so far. TTM revenue ending September 30, 2025, increased 5.91% YoY to $29.78 billion. Q3 revenue grew at a similar rate (5.70%) to $7.64 billion YoY. NRG's net income spiked 53.18% YoY, and earnings per share hit $2.78 in Q3, beating expectations.

Our Stansberry Score rates NRG a solid "B" overall, with good financials and fair valuation. Its score suffers a bit from average capital efficiency, with some concerns that its returns don't match its cost of capital.

That said, NRG Energy is worth monitoring, as its future projects and investments align with the growing demand for energy.

Talen Energy (TLN)

Finally, Talen Energy is an independent power producer and energy infrastructure company that owns and operates nuclear, natural gas, and coal power plants across America. Talen sells electricity and capacity to wholesale markets, with a focus on satisfying the growing demand for power required by data centers.

Talen made headlines in June when it announced an expansion of its current nuclear energy partnership with Amazon. Under this agreement, Talen will provide more than 1.9 GW of carbon-free nuclear energy from its Susquehanna, Pennsylvania power plant to regional AWS data centers through 2042. That equals roughly the amount of energy it takes to power all of New York City each day.

In return, Talen should see an estimated $18 billion in revenue.

My colleague Steven Longenecker covered the Talen-Amazon agreement in a June article, noting Amazon's ambitious approach to locking in the nuclear energy supply it will need to power its data centers moving forward:

Amazon's answer is obvious: Lock in supply before someone else does. Over the past 12 months, the company has:

In other words, Amazon is building a portfolio of nuclear options – conventional fission today, advanced fission next, and something far bigger on the horizon... the "Amazon Helios Project."

Talen's YoY financials were a mixed bag. On one hand, Q3 2025 revenue increased by an impressive 38.7%, hitting $770 million for the quarter. And its quarterly earnings growth grew by 23.20% YoY. However, Talen's net profit margin plummeted to 10% this year, down from 54.5%.

Our Stansberry Score ranks Talen a very solid "B" thanks to strong financials and valuation, as well as Momentum Bonus.

Of course, no stock is truly "safe." There are risks to consider when investing in utilities, as there are in every other sector. Let's examine those.

Key Factors to Watch Before Considering Utility Investments

  • Wholesale pricing/regional constraints: These factors can significantly impact a utility stock's profitability and operating costs. When wholesale electricity prices rise due to high demand (which we're clearly seeing right now) or fuel costs, regulated utilities have no choice but to purchase power at higher prices. That affects profit margins.

For merchant power companies, their revenue is directly impacted by the volatility of wholesale electricity prices. If those prices are high, business is booming. If those rates drop, so does revenue.

Regional grid constraints also affect prices as well as the ability to deliver power. When grids are congested, electricity can't flow freely. This results in using more expensive power to meet demand. That often leads to higher prices in capacity auctions. And those costs trickle down to consumers.

How does this impact investors? Higher costs eat into a utility's profitability. And once profits are negatively impacted, share prices tend to follow.

  • Execution Risk: This is an interesting, and relatively unfamiliar, period for utility stocks. Once viewed as safe and defensive plays, utilities are becoming growth stocks thanks to the insatiable power needs of data centers. That has pushed utility share prices to all-time highs. But that growth potential must become reality to keep utility stock momentum high. And that's only accomplished through active long-term contracts... particularly with big tech companies. Several of these agreements have come to fruition, as we outlined. But the market wants more. And analysts lose patience if those contracts are slow to progress.

  • Regulatory Approvals: One reason these deals are slow to progress is potential delays in regulatory approvals. And there's a long list of these approvals that utility companies must satisfy to set rates, advance major projects, secure land, and construct facilities. Not to mention environmental permits that ensure the company follows local, state, and federal regulations. This all creates potential for delays or even rejection of projects. And it certainly adds a layer of uncertainty to a utility company's potential profitability.

  • Slowing AI Capex: A relatively new risk for the utilities sector has to do with AI spending. As mentioned above, AI data center demand is a relatively new growth driver for this sector. But should AI capex slow for whatever reason, it could bring new data center demand lower. That, in turn, could reprice shares lower. That's especially true for stocks like Constellation and Talen, which have seen shares soar hundreds of percent since the launch of ChatGPT and the massive growth in data center spending.

Each of these factors can cut into profits. And when profits decline, share prices usually do too.

Bottom Line: Utilities Are a Critical Part of the AI Story

The AI boom was probably always destined for market correction. And that's likely what we're seeing now. Despite any correction, however, one fact remains... AI data centers need tons of power. And more AI data centers mean more demand for power.

Utility stocks are in a unique position right now – simultaneously a growth stock as well as a safe, defensive investment. That makes this the perfect time for investors to seriously look at adding utility stocks to their portfolio.

Regards,

David Engle

Editor's Note: It's no secret that artificial intelligence is gobbling up energy at an unprecedented rate... straining America's already vulnerable power grid.

All the big players are racing to find a new way to meet AI's power-hungry daily demands, pouring billions of dollars into alternative energy sources.

Regular folks can still get in on this tech, too – but time is running out.

Because Amazon (AMZN) may have just cracked the code.

This breakthrough technology is being hailed as "the Holy Grail of Power," and Amazon just went all-in on it...

Get the details right here, including how to prepare and what to buy.

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