Investors ought to increase their exposure to utility stocks as companies build out energy-guzzling data centers to power an artificial intelligence boom, Wells Fargo advised clients. The bank initiated coverage of 33 companies across the utilities and power space, assigning a raft of stocks overweight ratings. “Power demand and tailwinds are structural, not cyclical, driving growth higher for the sector, which on a risk-adjusted basis looks favorable vs. S & P [500] earnings growth,” analyst Shahriar Pourreza wrote Monday. AI-related investments could hit $375 billion this year and top $500 billion by the end of 2026, according to UBS . The flood of funds to the new technology has raised eyebrows among market experts, stoking concerns that the so-called AI bubble will eventually burst. But, Wells Fargo doesn’t see an AI-driven increase in energy demand fading anytime soon. “No one is chasing a fad here,” Pourreza wrote. In addition, utility stocks will likely continue gaining steam due to a combination of several other catalysts, including the reshoring of domestic manufacturing in the U.S. and electrification efforts, according to the note. Here are a few utilities stocks Wells Fargo is bullish on. Constellation Energy Corporation Wells Fargo assigned Constellation Energy ‘s shares an overweight rating, setting the price target at $478 per share. That implies 22% upside from Monday’s close. The emissions-free energy producer and supplier’s stock is the “best way to play hyperscaler opportunities [and] resource adequacy trends,” given its robust gas and nuclear portfolio, according to Wells Fargo. Shares have surged 71% in the year to date. Sempra The energy infrastructure company also received an overweight rating from Wells Fargo, as well as a $115 price target. That forecast signals a gain of more than 23% from Monday’s close. Wells Fargo noted Sempra trades at a discount, despite its top-quartile growth. And over the long-term, its earnings per share will likely exceed the 6%-8% growth suggested in its prior guidance, according to the investment firm. Shares are trading up about 6% in 2025. ( Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here . )
Source: cnbc.com
