The artificial intelligence revolution is upon us, and plenty is bound to change in how we conduct ourselves in society. From work to play, the potential applications of AI are seemingly endless. The rise of large language models has driven a new paradigm around investing, and how investors think about the sort of exponential upside this trend can provide.
When most investors look to play surging AI demand, certain companies come to mind immediately. In the semiconductor sector, NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) and its high-performance chips are integral to the rise of this technology. Data center stocks and companies building out AI applications and large language models — mostly big-tech names — are the other obvious candidates.
That said, there is a sector that could be more impactful for investors over the next five years. Here is why utilities stocks could ultimately be the biggest winners from this trade, relative to the likes of NVIDIA and other AI-related high flyers that currently have plenty of future growth priced into their valuations.
Power Is the Hard Constraint
Transmission lines
To run any AI application, an LLM or otherwise, you need chips and data centers. That is well understood, and companies like NVIDIA and its peers have surged on the expectation that growth will remain robust and may even accelerate. The true bottleneck on AI’s growth rate, though, boils down to power. Without electricity, chips and data centers are useless. Whether electricity comes from fossil fuels, renewables, or nuclear, there are plenty of utility stocks that look attractively priced given the scale of demand growth ahead.
The numbers make a compelling case. According to Goldman Sachs Commodities Research, U.S. data center power demand is forecast to climb from 31 GW in 2025 to 41 GW in 2026, then surge to 66 GW by 2027 — more than double the current level — driven by an accelerating buildout of AI infrastructure. That trajectory means data centers will account for 8.5% of total U.S. peak summer power demand by 2027, up from just 4.1% today. The International Energy Agency projects that U.S. data center electricity consumption will grow roughly 130% from 2024 levels by 2030, with AI-focused accelerated servers expanding at 30% annually. Confirming the trend from a different angle, data centers were responsible for roughly half of all new U.S. electricity demand growth in 2025, according to the IEA’s Global Energy Review. That kind of trajectory is extraordinary by any measure.
A notable wrinkle in the power story is Big Tech’s push to secure firm power outside the traditional grid through direct nuclear partnerships. In May 2026, NANO Nuclear Energy and Supermicro signed a non-binding memorandum of understanding to explore integrating NANO Nuclear’s microreactor systems with Supermicro’s AI server and data center platforms. The collaboration targets on-site, grid-independent nuclear power for hyperscale and enterprise data centers. Over the longer term, deals like this could shift some demand away from centralized utility grids toward specialized small modular reactor players. For now, though, the scale of power need is so vast that broad utility infrastructure remains central to any realistic buildout scenario.
The Baseload Reality and the Gas Surge
Renewables remain the long-term goal, but the near-term reality is that Big Tech is leaning heavily on natural gas to fill the firm-power gap. According to company sustainability reports, Google’s emissions jumped nearly 50% over the first five years of its climate commitments, Amazon’s rose by 33%, Microsoft’s by more than 23%, and Meta’s by more than 60%. The cost to build a new combined cycle gas turbine power plant has itself risen 66% in the last two years, per BloombergNEF, yet demand for new gas generation keeps rising because the grid simply cannot wait for renewables to scale.
That dynamic creates a two-sided story for utilities. On one side, regulated utilities are being asked to plan and finance enormous new generation and transmission capacity. On the other, the regulatory framework is actively evolving to support that buildout. FERC issued Order 1920 in May 2024, the commission’s most significant action on transmission planning in more than a decade, requiring transmission providers to conduct long-term regional planning over a 20-year horizon and establishing new standards for cost allocation. Follow-up orders (1920-A in November 2024, and 1920-B in April 2025) have further refined the framework, giving state regulators a stronger voice and accelerating the process. That legislative scaffolding reinforces the investment case for major transmission and generation players.
Adding further weight to the thesis: the four largest hyperscalers (Amazon, Google, Meta, and Microsoft) collectively plan to spend roughly $725 billion on capital expenditures in 2026, up approximately 77% from $410 billion in 2025. A substantial share of that goes directly to data center construction and power infrastructure. Every dollar spent on a new GPU cluster is, ultimately, a commitment to consume more electricity for years to come.
Evolving Economics Makes This Sector One to Watch for the Long Term
Red arrow heading higher, above three stacks of ascending coins
In practice, the limiting factor for AI capacity has already begun to shift from land and data center construction to megawatts and interconnection queues. That transition moves the scarcity from chips and racks to transmission and generation, directly benefiting utility companies operating at scale in the affected markets.
The valuation signal from the market is already apparent. According to Morningstar, the utilities sector’s average dividend yield has hit an all-time low of roughly 3%, a threshold that signals investors are pricing utilities more like growth stocks than traditional income plays. The Morningstar US Utilities Index was up 19% through late August 2025 and had surged 71% from its October 2023 low, including dividends. By April 2026, utilities had nearly doubled on a total return basis from that trough, marking the sector’s strongest two-year stretch in roughly two decades. Data center growth is a direct catalyst. American Electric Power, for example, has signed customer commitments for 24 GW of new load by 2030, of which 18 GW (75% of that committed pipeline) is from data centers alone, backed by executed energy service agreements with AEP CEO William Fehrman citing those figures on a July 2025 earnings call.
Why Utility Companies Could Outperform Large-Cap Chips and Data Center Stocks
Person holding a blue microchip in a lab
The core of this thesis is a valuation argument. Semiconductor giants already have years of expected growth reflected in their share prices. Utility companies, historically valued as low-growth, bond-like instruments, face a much lower bar to surprise on the upside. As power demand transforms from a slow-moving regulated commodity into a structurally scarce resource, the sector’s re-rating could prove substantial. With their median price-to-earnings ratio now hovering above 20 — well above the sector’s long-run average of roughly 16 — utilities are no longer trading as pure yield instruments. They are being priced for growth. That shift, if the power demand forecasts prove even partially correct, could define the sector’s story for the rest of the decade. Utilities stocks may become considerably less boring in the years ahead, and that is exactly where the opportunity lies.
Editor’s note: The AEP data center load figures were corrected to reflect verified numbers from AEP’s July 2025 earnings call (24 GW of committed new load by 2030, with 18 GW from data centers). The Goldman Sachs power demand forecast was expanded to include the intermediate 2026 figure of 41 GW and the projection that data centers will account for 8.5% of total U.S. peak summer demand by 2027. The Morningstar US Utilities Index return was updated to 71% from the October 2023 low through late August 2025, with added context that utilities had nearly doubled from that trough by April 2026. The four hyperscalers’ combined 2026 capital expenditure guidance of approximately $725 billion was added as new supporting context, along with the IEA finding that data centers drove roughly half of all U.S. electricity demand growth in 2025.
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