According to a report by Goldman Sachs Research, the US electricity demand is set to surge in the coming years, driven in part by the growing need for power to support the increasing use of artificial intelligence (AI) and data centers. After a decade of roughly zero growth in power demand, the US is expected to experience a significant increase in electricity consumption, with demand rising by around 2.4% between 2022 and 2030.
The report estimates that around 0.9% of this growth will be driven by the increasing power needs of data centers, which are expected to use 8% of US power by 2030, up from 3% in 2022. This surge in demand will require significant investment in new generation capacity, with US utilities needing to spend around $50 billion to support data centers alone.
Furthermore, the report notes that the incremental power consumption of data centers will also drive an increase in natural gas demand, with an estimated 3.3 billion cubic feet per day of new demand expected by 2030. This will require new pipeline capacity to be built to meet the growing needs of the data center industry.
In contrast, the report highlights that Europe’s power demand has been declining over the past 15 years, largely due to a series of economic shocks, including the global financial crisis, the COVID-19 pandemic, and the energy crisis triggered by the war in Ukraine. Despite this, the report notes that Europe will still need to invest over $1 trillion to prepare its power grid for the increasing demands of AI and electrification.
Investors Are Plugging into the Utility Sector Amid the AI Boom
In an interview on Yahoo Finance, Pavel Molchanov, Managing Director at Raymond James, discussed the growing connection between the utility sector and the emerging trend of Artificial Intelligence (AI). Molchanov shed light on why utilities have become an unexpected beneficiary of the AI boom.
According to Molchanov, as the world becomes increasingly reliant on data centers to power AI technologies, the demand for electricity is expected to surge. This has led investors to take notice of the utility sector, which is poised to benefit from the growing need for power. Molchanov noted that while utilities are a regulated industry with fixed prices, the overall electricity demand is ultimately driven by the economy. Therefore, if data centers can create growth in overall US power demand for the first time in 20 years, it would be a positive development for utility companies.
Molchanov emphasized that utilities are still a defensive play but with a twist. The sector is expected to experience a modest growth rate of 2-3% per year, driven by the increasing demand for electricity. This growth is significant, considering that the US electricity demand has been stagnant since 2007.
The conversation also touched on the regional variability in the utility sector, with certain areas being more attractive for data centers due to lower electricity prices. Molchanov mentioned Virginia, Ohio, and Texas as regions that are well-positioned to benefit from the growth in data centers, while California is less attractive due to its high power prices.
The increasing use of AI and data centers will have a significant impact on the global energy landscape. The need for significant investment in new generation capacity and infrastructure to support this growth is clear. With that in context let’s take a look at the 10 high growth utility stocks to invest in.
A vibrant skyline illuminated by the lights of the electric utility company.
Our Methodology
To compile our list of the 10 high growth utility stocks to invest in, we used the Finviz and Yahoo stock screeners to find the 50 largest companies utility companies. We then narrowed our choices to 10 companies with the highest 5-year revenue growth. We also included their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their of their revenue growth.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 High Growth Utility Stocks To Invest In
10. Algonquin Power & Utilities (NYSE:AQN)
5-Year Revenue CAGR: 10.30%
No of Hedge Fund Investors: 11
Algonquin Power & Utilities (NYSE:AQN) is a utility company serving over 1.2 million customers across the United States, Canada, and Chile. The company has a portfolio of high-quality assets, including 13,517 miles of electric transmission lines, 8,482 miles of gas pipelines, and 6,941 miles of water mains.
On August 9, Algonquin Power & Utilities (NYSE:AQN) announced that it has entered into a definitive agreement to sell its renewable energy business, excluding hydro, to a wholly-owned subsidiary of LS Power for a total consideration of up to $2.5 billion. The sale is part of the company’s plan to transform into a pure-play regulated utility and optimize its regulated business activities, which is expected to create long-term value for its customers and shareholders.
Analysts believe that Algonquin Power & Utilities (NYSE:AQN) is on the right track, transforming into a traditional utility business with a focus on regulated assets and cost-cutting measures. The company’s new CEO is committed to reducing costs and improving profitability, with a focus on “capital-light growth” through better regulatory coverage and rate reviews. Industry analysts have reached a consensus on the stock’s Buy rating, with an average target price of $6 that suggests a 16.80% upside potential from its current levels.
9. Enel Chile (NYSE:ENIC)
5-Year Revenue CAGR: 11.73%
No of Hedge Fund Investors: 7
Enel Chile (NYSE:ENIC) is the largest electricity generation and distribution company in Chile. The company operates power plants and has a focus on renewable energy, particularly hydroelectric, solar, and wind energy. The company is part of the Enel Group, a global leader in energy.
Enel Chile’s (NYSE:ENIC) financials are impressive, with a solid balance sheet featuring $597 million in cash and equivalents, $2.5 billion in total current assets, and $12.5 billion in total assets. The company’s revenue and earnings have rebounded strongly from the economic slowdown of 2020 and 2021, with estimated revenue of $4.6 billion and earnings of $0.42 per share for 2024. This represents a significant increase from 2021 when the company reported revenue of $3.0 billion.
As one of the largest energy utilities in Chile, Enel Chile (NYSE:ENIC) is well-positioned to capitalize on the country’s growing demand for electricity. Enel Chile (NYSE:ENIC) has a diversified generation mix that includes hydroelectric, wind, solar, and fossil fuel sources, the company has successfully transitioned away from coal-fired plants and is committed to reducing its carbon footprint. Despite this Enel Chile (NYSE:ENIC) trades at a significant discount to its global peers, with a forward PE of 6.51, which represents a 62.81% discount compared to the sector median of 17.51. This undervaluation presents a unique opportunity for investors to buy into a high-quality company with a strong financial profile.
Despite some risks associated with the company’s exposure to the Chilean economy and currency fluctuations, Enel Chile’s (NYSE:ENIC) stable revenue and earnings profile, combined with its low valuation and high dividend yield, make it an attractive investment opportunity for long-term investors. The company is anticipated to experience 32.25% earnings growth this year. With a consensus Buy rating from industry analysts, the stock has a target price of $10.40, which represents a 41.71% upside potential from its current level.
8. Southwest Gas (NYSE:SWX)
5-Year Revenue CAGR: 12.05%
No of Hedge Fund Investors: 15
Southwest Gas (NYSE:SWX) is a U.S.-based utility company that provides natural gas services to over 2.2 million customers in Arizona, Nevada, and California. The company is also involved in pipeline construction and maintenance through its subsidiary, Centuri Group.
Southwest Gas’ (NYSE:SWX) strong growth profile is driven by its presence in Arizona and Nevada, two of the fastest-growing states in the US. According to the latest Investor’s Presentation, the company’s service territory has experienced robust population growth, with Arizona’s 5-Year Real GDP CAGR (2018-2023) 70% higher than the national average, and Nevada generating Real GDP growth 30% higher than the national average. This growth has translated into a high customer growth rate, with Southwest Gas (NYSE:SWX) adding 40,000 new customers annually, representing 6% of all new natural gas customers across the US.
This strong growth profile is a significant advantage for the company and provides a solid foundation for future earnings growth. Moreover, forward markets for Henry Hub futures, the benchmark U.S. natural gas price, indicate that gas prices will average $3.20 per mmBtu in 2025, compared to an average of $2.22 so far this year, data from LSEG shows. If realized, that would be a roughly 44% year-on-year price increase. Southwest Gas (NYSE:SWX) is well-positioned to benefit from the increase in gas prices. The company’s earnings are projected to increase by 9% in the current year. Industry analysts have reached a consensus on the stock’s Buy rating, with an average target price of $77.00 that suggests a 3.52% upside potential from its current levels.
7. Essential Utilities (NYSE:WTRG)
5-Year Revenue CAGR: 17.86%
No of Hedge Fund Investors: 9
Essential Utilities (NYSE:WTRG), previously known as Aqua America, is a water and natural gas utility company serving several U.S. states. The company operates primarily in regulated markets, offering water, wastewater, and natural gas distribution services.
In Q2, Essential Utilities (NYSE:WTRG) results were decent, despite weather headwinds, and the company’s guidance for 2024 remains encouraging. The company’s five-year capital spending plan can deliver 8% annual rate base growth for the regulated water segment and 10% annual rate base growth for the regulated natural gas segment, providing a realistic path to its adjusted diluted EPS growth target.
The company’s positive rate case outcomes on the horizon, including the Peoples Gas rate case in Pennsylvania and the Pennsylvania water rate case, can provide a boost to its annual operating revenue. Essential Utilities’ (NYSE:WTRG) strong financial health, with a debt-to-capital ratio of between 50% and 55% and an interest coverage ratio of 3.3, supports its dividend growth.
Essential Utilities (NYSE:WTRG) is a high-quality dividend stock that offers a safe and reliably growing dividend. The company’s strong balance sheet, high-interest coverage ratio and positive rate case outcomes on the horizon make it an attractive investment opportunity. The company’s earnings are projected to increase by 9.23% in the current year. With a consensus Buy rating from industry analysts, the stock has a target price of $46.00, which represents a 16% upside potential from its current level.
6. NRG Energy (NYSE:NRG)
5-Year Revenue CAGR: 24.66%
No of Hedge Fund Investors: 56
NRG Energy (NYSE:NRG) is a US-integrated power company offering a broad range of energy solutions to its customers. The company operates a diverse portfolio of generation facilities, including solar, wind, and natural gas.
In Q2, NRG Energy’s (NYSE:NRG) revenue increased 4.8% year-over-year to $6.58 billion. This strong performance was fueled by growth in the East and West regions, which saw high single-digit sales increases, and continued robust performance in Texas, where volume growth and rising subscriber counts were key drivers. The company’s adjusted EBITDA margin also expanded by 120 basis points to a record 14.2%, driven by lower retail supply costs and strong sales across Texas. Additionally, the company’s Vivint Smart Home business, a key contributor to EBITDA, is expected to continue growing due to rising demand for smart home solutions and a growing subscriber base.
NRG Energy (NYSE:NRG) has demonstrated strong recovery, supported by high demand in Texas and improvements in the East and West regions. Looking ahead, the company is well-positioned to benefit from electrification trends, driven by increasing data center demand and on-shoring activities. NRG Energy (NYSE:NRG) has also made progress on its strategic goals, including submitting brownfield development projects to the Texas Energy Fund, which focuses on repurposing former industrial sites for new energy development.
NRG Energy (NYSE:NRG) is projected to increase its earnings by 100% this year. Furthermore, the Electric Reliability Council of Texas (ERCOT), which manages the flow of electric power across the state, anticipates significant load growth in the coming years, forecasting over 60 gigawatts of growth through 2030. This growth, driven by on-shoring, data centers, and other large-load customers, presents a long-term demand opportunity for NRG Energy (NYSE:NRG).
5. Brookfield Infrastructure Partners (NYSE:BIP)
5-Year Revenue CAGR: 27.49%
No of Hedge Fund Investors: 14
Brookfield Infrastructure Partners (NYSE:BIP) is a leading global infrastructure company that owns and operates critical infrastructure in the utilities, transportation, and energy sectors. The company’s diverse portfolio spans several continents.
The macro environment is changing due to the Federal Reserve’s move to lower interest rates, declining interest rates will also make investors more attracted to income stocks such as Brookfield Infrastructure Partners (NYSE:BIP). The company’s assets, such as pipelines, electrical grid infrastructure, and transportation assets, are part of the broad alternative asset investment universe and will become more attractive on a relative basis.
Brookfield Infrastructure Partners’ (NYSE:BIP) operational performance is highly important, and the company has reported a 10% increase in FFO driven by growth in its transport segment. The company’s FFO growth rate is attractive, and the fact that the most important segment is showing an above-average growth rate is positive.
The growth potential for Brookfield Infrastructure Partners (NYSE:BIP) is significant, driven by the increasing demand for alternative assets and income stocks. The company’s strong operational performance and attractive valuation suggest that it is well-placed to benefit from the current macro environment. The company’s earnings are expected to surge by 90.20% in the current year. Industry analysts have reached a consensus on the stock’s Buy rating, with an average target price of $38.64 that suggests a 12.66% upside potential from its current levels.
4. Enlight Renewable Energy (NASDAQ:ENLT)
5-Year Revenue CAGR: 56.89%
No of Hedge Fund Investors: 2
Enlight Renewable Energy (NASDAQ:ENLT) is an Israeli-based Independent Power Producer (IPP). As a leading developer, constructor, and operator of renewable energy projects, Enlight Renewable Energy (NASDAQ:ENLT) has established a significant presence in Israel, Europe, and the United States.
On October 14, Enlight Renewable Energy (NASDAQ:ENLT) announced the full commencement of commercial operation of its Solar and Storage Cluster in Israel. The Cluster, which is comprised of 12 installations located in the northern and southern regions of the country, has a combined solar generation capacity of 254 MW and energy storage capacity of 594 MWh. This makes it one of the largest renewable energy facilities operating in Israel’s newly deregulated power market, accounting for over 50% of the clean electricity produced under the new regulatory framework.
The Cluster’s entire output will be sold to the company’s supplier division, which will market the electricity directly to customers in Israel. This includes signing corporate power purchase agreements (PPAs) with large industrial clients, as well as sales to households and small businesses through a joint venture with Electra Power. The Cluster is expected to generate revenue of $34-36 million in its first full operating year, before taking into account the additional margin generated by the company’s supplier division.
Enlight Renewable Energy (NASDAQ:ENLT) has a pipeline of projects, which are expected to increase its gross installed capacity by 618MW by the end of 2025. The company’s expansion into the US market, where it has several projects under construction, is particularly noteworthy.
The Inflation Reduction Act provides a unique opportunity for Enlight Renewable Energy (NASDAQ:ENLT) to access tax credits of up to 30%, increasing the inherent profitability of each new project. This, combined with the decrease in costs and the higher tax credits in the US market, provides a growth opportunity for the company. Industry analysts are bullish on the company’s stock price and have a consensus Buy rating at a target price of $20.00, which implies a 24.34% increase from its current level.
3. Central Puerto (NYSE:CEPU)
5-Year Revenue CAGR: 59.73%
No of Hedge Fund Investors: 5
Central Puerto (NYSE:CEPU) is a leading energy company in Argentina and has a generation capacity of 21.4 TWh and a solid market share of 20.13%. In recent years the company has shifted its focus towards renewable energy sources such as solar and wind power.
The recent changes in the Argentinian government’s energy policies are likely to benefit Central Puerto (NYSE:CEPU). The government’s aim to generate 57% of its energy from renewable sources by the end of the decade is a major positive for the company, and the removal of price controls is likely to lead to higher revenues and profits for the company.
Central Puerto (NYSE:CEPU) growth prospects are driven by the increasing demand for power in Argentina. With a growing economy and a growing population, the demand for energy is likely to remain strong. Central Puerto (NYSE:CEPU) is well-positioned to capitalize on this growth, with a strong portfolio of renewable energy sources and a growing market presence. Industry analysts have reached a consensus on the stock’s Buy rating, with an average target price of $13.50 that suggests a 26.41% upside potential from its current levels.
2. Pampa Energia (NYSE:PAM)
5-Year Revenue CAGR: 78.11%
No of Hedge Fund Investors: 9
Pampa Energia (NYSE:PAM) is one of the largest energy companies in Argentina and is involved in electricity generation, transmission, and distribution, as well as oil and gas exploration and production. The company’s diverse energy portfolio includes both conventional and renewable sources.
Pampa Energia (NYSE:PAM) has been facing significant challenges in its segments, with stagnation in key areas and limited growth potential due to infrastructure constraints and political uncertainties. The company’s Q2 results show flat growth in gas and oil production, with no new projects in power generation and an $80 million impairment loss imposed by the government. Despite challenges, Pampa Energia’s (NYSE:PAM) gas segment, which accounts for 94% of its oil and gas production, has seen a 40% increase in production levels compared to 1H23. However, this growth has been offset by falling prices, resulting in flat operating income for the segment.
The company’s oil segment has also seen slow growth, with production expanding 7% in Q2, but with a goal of ramping up production to 40-50 thousand barrels per day by 2027. The segment generated an operating income of $69 million in Q2, in line with expectations. Pampa Energia’s (NYSE:PAM) power generation segment is also facing challenges, with the government canceling all generation projects awarded in 2023 and no new mechanism in place for private players to invest in large-scale generation capacity. However, the company is completing previous projects and finishing a 130MW renewable energy project, which could provide growth opportunities.
Pampa Energia’s (NYSE:PAM) petrochemical segment has seen a 6% increase in production and a similar increase in operating profits, driven by volume growth. This segment is small but is expected to generate $40 million in operating income. Pampa Energia’s (NYSE:PAM) gas segment could see growth if the government approves plans to increase the GNK pipeline capacity, while the oil segment could see increased production if the company is able to ramp up production to its goal of 40-50 thousand barrels per day.
The power generation segment could also see growth if the government introduces a new mechanism for private players to invest in large-scale generation capacity. The petrochemical segment could continue to see growth driven by volume increases, and the company’s holdings in TGS and Transener could continue to generate equity gains. Pampa Energia (NYSE:PAM) is anticipated to experience 42.33% earnings growth this year.
1. New Fortress Energy (NASDAQ:NFE)
5-Year Revenue CAGR: 78.65%
No of Hedge Fund Investors: 20
New Fortress Energy (NASDAQ:NFE) is a global energy infrastructure company that focuses on natural gas, particularly liquefied natural gas (LNG). The company aims to provide cleaner, affordable energy by constructing and operating LNG terminals and facilities in various emerging markets.
New Fortress Energy (NASDAQ:NFE) is facing significant challenges in addressing its near-term debt maturities and liquidity needs. However, the company has successfully navigated these hurdles and announced a deal with creditors to raise $400 million in gross proceeds in an equity offering on October 1.
The equity offering, which priced 46,349,942 shares of Class A common stock at $8.63 per share, has provided a much-needed injection of capital for the company. New Fortress Energy’s (NASDAQ:NFE) Chairman and CEO, Wes Edens, has demonstrated his confidence in the company’s prospects by investing $50 million in the offering. The transaction support agreement with certain supporting noteholders has also helped to address the company’s debt maturities, with the issuance of $1.2 billion in new 12% 2029 senior secured notes and the exchange of $1.4 billion in existing 2026 and 2029 notes into new 12% 2029 senior secured notes. This has resulted in a significant increase in the company’s bond debt from $3.12 billion to $3.45 billion but has also provided the company with the necessary liquidity to redeem $875 million of 2025 senior secured notes.
With a substantial increase in liquidity, the company is now well-placed to catch up on delayed vendor payments and capital expenditures. The commercial LNG production at the company’s new Fast LNG facility offshore Altamira, Mexico, is expected to generate significant cash flows, which will be crucial in servicing the increased interest payment obligations. While the company will need to navigate the challenges of material common shareholder dilution and increased interest payments, the successful addressing of near-term debt maturities and liquidity needs has removed a significant overhang from the stock.
New Fortress Energy (NASDAQ:NFE) is now better positioned to navigate the challenges of the energy market and capitalize on growth opportunities. Industry analysts have reached a consensus on the stock’s Buy rating, with an average target price of $19.07 that suggests a 68.30% upside potential from its current levels.
While we acknowledge the potential of New Fortress Energy (NASDAQ:NFE) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NFE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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