We recently analyzed top 8 utilities stocks that are popular among hedge funds because of their AI-related growth catalysts. Since Duke Energy Corp (NYSE:DUK) was part of the list of these stocks, being one of the biggest utilities providers in the US, it deserves a deeper look.
The AI revolution that started with the launch of ChatGPT has catapulted several sectors into the limelight that were hitherto believed to be unrelated to AI. Utilities is one of the most notable of these sectors. As more and more companies deploy AI in their systems and develop new applications, they need high-performance data centers to power their AI processing chips. And these data centers are power hogs. Why? Goldman Sachs in a recent report titled AI, data centers and the coming US power demand surge said that a single ChatGPT query takes about 6 to 10 times as much electricity to process as a typical Google search. Goldman Sachs also expects AI-led data center boom to cause a 160% increase in power demand in the U.S. Goldman analysts estimate that utility companies will invest $50 billion to support this new demand from the data center sector.
Goldman Sachs also expects data center power usage to more than double by 2030. It estimates that data centers would account for about 8% of the total power demand in the US, compared to just 3% in 2022. Goldman also expects power demand from AI to rise about 200 TWh in 2024-30, with the bull case estimate clocking in at 330 TWh, and the bear case estimate sitting at 110 TWh.
A latest Bloomberg report cited Manju Naglapur, senior vice president and general manager for cloud, applications and infrastructure solutions at Unisys Corp, who said that data centers were causing a spike in power demand even before the latest AI boom. Naglapur thinks with the current scale of investments in data centers, power consumption will increase “massively.”
As investors begin to look beyond obvious AI mega-cap tech names like Nvidia, Meta Platforms and Alphabet, which have already racked up solid gains so far, utilities stocks are trending in the AI investing space. Utilities Select Sector SPDR Fund (NYSEARCA:XLU) is up about 11% so far this year. Kevin Gordon, a Director and Senior Investment Strategist at Charles Schwab, recently said that 50% of the utilities sector constituents have seen their new 52-week highs. Utilities stocks come with an added allure thanks to their stable businesses and high dividend yields, something investors are looking for in the current economic environment where interest rates are expected to stay elevated.
For this article we scanned Insider Monkey’s database of 919 hedge funds updated for the first quarter of 2024 and listed down all utilities stocks that are actively exposed to the AI power demand surge. From these stocks we chose 8 stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? 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).
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Duke Energy Corp (NYSE:DUK)
Number of Hedge Fund Investors: 34
North Carolina-based electric and natural gas utility company Duke Energy Corp (NYSE:DUK) is one of the best AI utilities stocks to buy in 2024 to benefit from the AI boom.
Duke Energy Corp (NYSE:DUK) management said during Q1 earnings call that AI-powered data center demand is “unprecedented.”
“These investments are part of our goal to have 30,000 megawatts of regulated renewables on our system by 2035. In the Carolinas, we filed certificates of Public Convenience and Necessity in March to build more than 2 gigawatts of new, advanced class of natural gas generation. The filings with the NCUC include two simple-cycle combustion turbines and one combined cycle plant, consistent with the Carolinas resource plan. Pending regulatory approvals, construction is planned to start in 2026 with all units operational by the end of 2028. Each of these new facilities will be cited in existing coal plants and will provide needed dispatchable generation when those units retire. We recognize there’s a lot of attention on natural gas in its role in achieving net zero.
We believe natural gas must be a part of not just Duke’s but our nation’s energy transition strategy in the face of unprecedented demand from AI data centers, chips manufacturers and other economic development, natural gas remains an essential tool to provide reliable and affordable energy for customers and complements our substantial investments in renewables and energy storage.”
Read the full earnings call transcript here.
Earlier this month Duke Energy Corp (NYSE:DUK) touched 52-week highs as Duke Energy Corp (NYSE:DUK) beat Q1 estimates amid rising residential and commercial customer demand in its service territory.
Duke Energy Corp (NYSE:DUK) ranks 5th in Insider Monkey’s list of the 8 Best AI Utilities Stocks to Buy Now.
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Disclosure: None. This article is originally published at Insider Monkey.