Dominion Energy: A Contrarian Buy in AI-Driven Energy Infrastructure

In the shadow of a sector dominated by AI hype and speculative tech stocks, Dominion Energy (D) stands as an overlooked titan of value investing. While Wall Street fixates on the next Silicon Valley darling, this utility giant is quietly building the backbone of the AI revolution—reliable, scalable energy infrastructure. For contrarian investors, Dominion represents a rare intersection of high-yield dividends, robust fundamentals, and long-term growth potential in a sector dismissed as “boring.”

The Contrarian Case: High Dividend, Low Sentiment

Dominion Energy's 4.44% dividend yield (as of August 2025) is a beacon for income-focused investors. Yet, the market's skepticism is palpable. Analysts have assigned the stock a bearish average rating, citing overbought technical indicators and a payout ratio of 107.3%. Critics argue that the company's reliance on regulated cash flows and debt-fueled dividends makes it vulnerable to interest rate hikes and regulatory delays.

But this pessimism overlooks Dominion's strategic transformation. The company is not just a utility—it is a critical enabler of the AI-driven economy. With $50 billion allocated for capital expenditures from 2025 to 2029, Dominion is investing heavily in offshore wind, grid modernization, and data center connectivity. These projects align with the surging demand for clean energy from AI data centers, particularly in Northern Virginia's “Data Center Alley,” where Dominion has connected 15 new facilities in 2025 alone.

Fundamentals: Stability in a Volatile World

Dominion's financials tell a story of disciplined capital allocation and regulatory tailwinds. Its regulated utility segments (Virginia and South Carolina) generated 90% of total revenue in Q2 2025, insulated from the volatility of unregulated markets. The company's debt-to-equity ratio of 1.61x, while elevated, is justified by its capital-intensive projects, including the $10.9 billion Coastal Virginia Offshore Wind initiative. Crucially, Dominion has secured regulatory approvals—such as a $631 million rate increase in Virginia—to recover costs and fund growth.

The payout ratio, though currently stretched, is expected to normalize as earnings grow. Analysts project free cash flow to reach $3.39 billion in 2025, down from a negative $7.18 billion in 2024, as AI-driven demand accelerates. This trajectory suggests the dividend is not only sustainable but poised to become more conservative over time.

Sector Dynamics: Utilities as AI's Unsung Heroes

The utility sector is undergoing a quiet revolution. As AI data centers consume 6–8% of U.S. electricity generation today (projected to rise to 15% by 2030), utilities are adapting with grid-enhancing technologies, renewable procurement, and innovative tariffs. Dominion is at the forefront of this shift. Its partnerships with data center operators include long-term electric service agreements covering 10 GW of capacity, with 30 GW in negotiation. These contracts provide stable cash flows and justify its aggressive capital spending.

Moreover, Dominion's clean energy initiatives—such as the CVOW project and small modular reactor (SMR) exploration—position it to meet the sustainability demands of AI clients. Microsoft, Google, and Amazon are all prioritizing carbon-neutral data centers, and Dominion's renewable portfolio aligns perfectly with this trend.

Contrarian Rationale: Buying the Fear, Not the Hype

The bear case for Dominion is valid but short-sighted. Technical indicators like the MACD Death Cross and overbought RSI suggest near-term weakness. However, value investors thrive on such dislocations. Dominion's price-to-book ratio of 0.33 and price-to-cash ratio of 0.68 indicate it is trading at a discount to its intrinsic value, particularly when considering its role in the energy transition.

The key question is whether Dominion can execute its $50 billion capital plan. Regulatory support, geographic dominance in high-growth regions, and a 389-year dividend streak (yes, 389 consecutive quarters) suggest it can. For investors willing to ignore the noise, Dominion offers a compelling risk-reward profile: a high yield to anchor returns, with growth potential from AI-driven infrastructure demand.

Conclusion: A Buy for the Long-Term

Dominion Energy is not a flashy AI stock, but it is the unsung hero of the AI era. While tech investors chase the next big thing, Dominion is building the infrastructure that powers it. For contrarian value investors, the current pessimism presents an opportunity to buy a high-quality, dividend-paying utility at a discount.

Investment Advice: Consider initiating a position in Dominion Energy for a diversified portfolio seeking income and long-term growth. Monitor regulatory developments and capital execution risks, but remain confident in the company's strategic alignment with the AI-driven energy transition. The market may not be paying attention now—but it will when the next energy crunch hits.