Utilities Surge as Data Centers and Renewables Drive Growth - A 2025 Roundup

The utilities sector has emerged as a resilient performer in early 2025, outpacing broader market volatility amid trade wars, inflation fears, and shifting monetary policies. Defensive investors have flocked to the sector, drawn by stable dividends, capital investment plans, and surging demand from data centers powered by AI. Here’s a breakdown of the key players and trends propelling utilities higher—and why the sector could continue to shine.

The Data Center Boom Fuels Earnings Growth

Utilities are benefiting from an unprecedented surge in electricity demand from data centers, which now account for 6% of global power consumption and are projected to grow at a 15.8% annual rate through 2028. Companies like Evergy (EVRG) are at the forefront of this trend. The Kansas-based utility has secured proposals from tech giants like Alphabet, Meta, and Panasonic, which could represent 60% of its system demand. Analysts estimate this could drive 6% annual earnings growth through 2028—exceeding Evergy’s 4%-6% guidance.

Regulatory Wins and Capital Plans Anchor Stability

Regulatory tailwinds are another pillar of utilities’ resilience. Duke Energy (DUK) secured favorable rulings in North Carolina and South Carolina, where recent legislation improved its regulatory environment. Its $73 billion capital plan (2024–2028) targets clean energy and grid upgrades, supporting a 5%-7% annual earnings growth target. Meanwhile, WEC Energy Group (WEC) maintained a 9.8% return on equity in Wisconsin, enabling its $28 billion capital plan to boost earnings by 6.5%-7% annually through 2029.

Dividends and Valuations Offer Defensive Appeal

Utilities’ dividend yields remain attractive in a low-interest-rate environment. Duke Energy’s 3.9% yield and Eversource Energy’s (ES) 5% yield are among the highest in the sector. Despite rising, valuations remain reasonable: Eversource trades at a 12 P/E ratio, while the broader sector’s average P/E of 18 lags behind tech and consumer discretionary stocks.

Clean Energy and Climate Risks Create Opportunities—and Challenges

Utilities are racing to meet state clean energy mandates, with $369 billion in federal support from the Inflation Reduction Act (IRA) incentivizing renewable projects. NextEra Energy Partners (NEP) leads with a 19.7% expected annual return through 2028, driven by contracted solar and wind projects. However, natural disaster risks—such as wildfires and hurricanes—remain a concern, with regulators demanding stricter mitigation plans.

Top Stocks to Watch in 2025

1. Evergy (EVRG): Benefits from data center demand and regulatory wins in Kansas. Analysts see 6% annual growth potential.
2. WEC Energy (WEC): Strong execution in Wisconsin and Illinois supports its 6.5%-7% earnings target.
3. Duke Energy (DUK): A $73 billion capital plan and favorable regulation position it for steady returns.
4. Eversource Energy (ES): Undervalued at 12 P/E, with 6% growth in regulated operations offsetting its lack of data center exposure.

Conclusion: Utilities Remain a Steady Hand in Volatile Markets

The utilities sector’s 7% average annual return since 2021 reflects its role as a defensive haven. While risks like regulatory pushback or inflation spikes linger, the sector is well-positioned to capitalize on secular trends. Data center demand, clean energy transitions, and dividend appeal will likely keep utilities in investors’ crosshairs. For now, utilities like Evergy, WEC, and Duke Energy offer a blend of growth and stability—making them a key sector to watch in 2025 and beyond.