Why US Utility Stocks Are Falling After the AI Power Surge

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Why US Utility Stocks Are Falling After the AI Power Surge.

stock :: 4hrs ago :: source - bloomberg

By Josh Saul and Monique Mulima

(Bloomberg) -- The artificial-intelligence boom’s promise of runaway electricity demand has jolted shares of US power companies to all-time highs. But those generators and utilities are now learning that the hype comes with an edge: Investors won’t wait forever for results.

Companies that recently hit record valuations are returning to earth as investors realize the massive data-center deals they’d banked on are actually smaller, or slower, than expected.

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Constellation Energy Corp. saw shares tumble 11% from an October high after a third-quarter earnings call that yielded no details on new power generation. The headline of one Jefferies analyst note read: “No Data Center Deals.” Similarly, Vistra Corp. has fallen 16% since mid-October as analysts noted a slower pace of data center announcements than they expected.

The S&P 500 Utilities Index is now set to post the worst monthly performance since August, after reaching an all-time high in October.

“These are not your father’s and mother’s utility stocks,” said Mark Malek, chief investment officer at Muriel Siebert & Co. “People are starting to question, ‘Can these companies scale as fast as they want to, are they throwing capital at these projects that’ll never get done?’”

Vistra declined to comment. Constellation didn’t immediately respond to a request for comment.

While utilities have long been regarded as safe places to park money, the massive data-center build-out being spurred by AI has triggered an avalanche of investment into the sector. Now, as reality sets in, investors are trying to figure out which companies can deliver on their big promises — and which would be able to weather the potential pop of a trillion-dollar AI bubble.

“The AI bubble fears are playing into some of the weakness recently in utilities,” said Travis Miller, a utility analyst for Morningstar. “If the electricity demand growth doesn’t show up, then utilities look overvalued where they’re trading today.”

The companies have already started to temper expectations. Constellation narrowed the top end of its full-year earnings per share forecast in November, while Vistra did the same with its adjusted Ebitda forecast. NRG Energy maintained its full-year Ebitda forecast in November, but investors had been expecting a guidance increase.

Still, some analysts say the pullback is nothing to worry about, with investors simply taking profits after the huge gains of October.

“We don’t have a bubble in utilities,” said Sophie Karp, a utility analyst at KeyBanc Capital Markets. “The market is taking a pause until we see the next leg of growth.”

Even after recent declines, Constellation remains 60% higher this year, with NRG rising 87% and GE Vernova up 79%, outpacing even the 34% gain that Nvidia Corp. has seen this year.

Another threat is “a massive Deepseek situation” in which an unexpected shift in the AI market upends demand prospects, said Tim Winter, a portfolio manager at Gabelli Funds who covers the utility sector.

News early in the year that Chinese intelligence company DeepSeek’s AI model can operate on a fraction of the energy use required by US companies triggered a widespread sell-off in shares of power companies.

Such a development would particularly hit unregulated power sellers such as Constellation, NRG and Vistra.

--With assistance from Naureen S. Malik and Will Wade.