The AI-Driven Electricity Boom Stalls: Why Are US Utility Stocks Falling?

The Zhitong Finance App learned that expectations of a blowout increase in electricity demand caused by the artificial intelligence boom have driven the stock prices of US power generation companies and utility companies to soar to historic peaks. However, these companies are now facing fears of a decline in hype — investors won't wait indefinitely for returns to be realized.

Companies whose valuations have recently reached new highs are gradually returning to the rational valuation range because the market realizes that the actual scale of the large-scale data center business they are hoping for may fall short of expectations, or that the project is progressing significantly slower than predicted. This lack of expectations is shaking investor confidence and prompting capital to reassess the extent to which the real value matches risk in the sector.

The stock price of Constellation Energy (CEG.US) fell 11% from the October high after the third quarter earnings call because the meeting did not disclose any details of new power generation projects. One Jefferies analyst's report headline reads: “No data center deal.” Similarly, Vistra Energy (VST.US) has declined 16% since mid-October, as analysts noticed that its data center project announcements were slower than expected.

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In addition, after hitting an all-time high in October, the S&P 500 utilities index is currently facing its worst monthly performance since August.

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“Today's utility stocks are no longer what your parents were familiar with,” said Mark Malek, chief investment officer at Muriel Siebert, bluntly. “The market is setting off a new wave of questions—can these companies expand as fast as expected? And is capital being wasted on projects that will never be implemented?”

Vistra Energy declined to comment. Constellation Energy did not immediately respond to requests for comment.

Although the utility industry has always been seen as a haven for capital, large-scale construction of data centers driven by artificial intelligence has sparked an investment frenzy in the sector. Now, as the reality of the industry gradually becomes apparent, investors are trying to clarify two key questions: which companies can actually deliver on their grand expansion promises, and which can retreat and stay safe when the potential trillion-dollar AI bubble bursts.

“Concerns about the AI bubble have exacerbated some of the recent weakness in utility stocks,” said Travis Miller, a utility analyst at Morningstar. “If the increase in electricity demand fails to materialize, then utility stocks are overvalued at current transaction prices.”

These companies have begun to lower their expectations. Constellation Energy narrowed the upper limit of its annual earnings per share forecast in November, and Vistra Energy made the same adjustments to its adjusted EBITDA forecast. NRG Energy (NRG.US) kept its full-year EBITDA forecast unchanged in November, but investors originally expected an increase.

However, some analysts said there is no need to worry about this pullback; investors only made a profit after the sharp rise in October.

“There is no bubble in the utilities sector,” said Sophie Karp, a utility analyst at KeyBanc Capital Markets. “The market is resting and waiting for the next round of growth to arrive.”

Despite the recent decline, Constellation Energy is up 60% this year, NRG Energy is up 87%, and GE Vernova (GEV.US) is up 79%, even surpassing Nvidia (NVDA.US)'s 34% increase this year.

Tim Winter, portfolio manager for the utility sector at Gabelli Fund, said that another major threat facing the utilities sector is that the AI market may experience disruptive technological breakthroughs like the DeepSeek incident at the beginning of the year, which completely destroyed the electricity growth expectations on which it depends for survival.

According to reports, at the beginning of the year, news indicated that the operating energy consumption of DeepSeek's AI model was only a fraction of that of US companies, triggering a general decline in power stocks.

Such developments will particularly impact unregulated electricity sellers such as Constellation Energy, NRG Energy, and Vistra Energy.