We recently published a list of 10 Best Performing Utilities Stocks So Far in 2025. In this article, we are going to take a look at where NRG Energy, Inc. (NYSE:NRG) stands against the other utilities stocks.
The utility investors have had a strong 2024. Morningstar reported that utilities rose by 27%, including dividends, marking its best performance since 2000. The 2024 rally mitigated the 2023 woes, resulting in the fair valuation of utilities. Notably, the valuations fully showcase the AI-related energy demand growth potential. Even though utilities have outperformed the market in 2 of the last 3 years, the sector’s 7% average return since 2021 remains in line with the sector’s 40-year average.
Growth Drivers for Utilities in 2025
As per Fidelity, America is at an inflection in power demand, with a favourable outlook for utilities. The electrification and the growth of AI continue to act as tailwinds for exponential growth in the sector. The technology of AI has been acting as a significant boost to predicted energy demand over the upcoming decade. AI needs significant computational power, storage space, and low-latency networking for training and running models. Such applications are generally hosted in data centers. With AI becoming more common, the energy demands from data centers are expected to grow exponentially, which can translate to increased earnings growth for utilities.
As a result of such trends, the energy demand is expected to grow more than 38% over the upcoming 2 decades, believes Fidelity. Regulated utilities are required to build new power plants in a bid to satisfy this demand surge. With reserve margins tightening, power prices for existing energy are also expected to increase. Therefore, the investment firm believes that the transition of power fleet to electrification and the growth of AI are durable trends, which are expected to support utilities for years to come.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Investing in Utilities
Morningstar believes that income-focused investors have favored utilities because of their stable cash flows and high dividend payout ratios. The firm believes that utilities are a defensive play for investors during economic downturns, providing steady returns even during the volatile market. Furthermore, utilities’ focus on sustainable energy investments and grid modernization results in creating opportunities for long-term growth, further strengthening their appeal as income-generating assets.
Utility companies that effectively steer through regulatory landscapes, make investments in infrastructure, and embrace innovation are expected to sustain their competitive advantages. Numerous factors are expected to drive renewed growth in electricity demand, including the proliferation of EVs, and the surge of data centers driven by advancements in AI. As per Morningstar, such factors reflect strong opportunities for utilities to expand services and infrastructure to cater to dynamic electricity needs.
Our Methodology
To list the 10 Best Performing Utilities Stocks So Far in 2025, we used a screener to shortlist the stocks catering to the utility sector. Next, we chose the stocks that have increased the most on a YTD basis. Finally, the stocks were ranked in ascending order of their YTD performance, as of February 19. We also mentioned hedge fund sentiments around each stock, as of Q4 2024.
At Insider Monkey we are obsessed with 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).
Close up image of an engineer inspecting the control panel of a modern power plant.
NRG Energy, Inc. (NYSE:NRG)
% Gain on a YTD Basis: 21.2%
Number of Hedge Fund Holders: 53
NRG Energy, Inc. (NYSE:NRG) operates as an energy and home services company in the United States and Canada. Evercore ISI analyst Durgesh Chopra upped the company’s stock to “Outperform” from “In Line,” providing a price target of $126, up from $74. The firm has a positive outlook for the power and utilities group, highlighting improving fundamentals and a favorable valuation backdrop. The firm believes that these factors are expected to support outperformance through H1 2025.
As per the analyst, factors such as inflation moderating, expected interest rate cuts, and higher electricity demand are expected to act as growth enablers. Evercore expects elevated investment in utility infrastructure, mainly fueled by data centers, with more deals and announcements anticipated in 2025. Elsewhere, Guggenheim analyst Shahriar Pourreza raised NRG Energy, Inc. (NYSE:NRG)’s price target to $134 from $118, keeping a “Buy” rating.
For 2025, the company expects adjusted EBITDA in the range of $3,725 million – $3,975 million and adjusted net income of between $1,235 million – $1,385 million. NRG Energy, Inc. (NYSE:NRG) remains focused on adding new capacity to its portfolio, and its partnership with Renew Home offers further validation of its customer-focused strategy. NRG Energy, Inc. (NYSE:NRG) has provided 2024 ranges for adjusted net income and adjusted EPS of $1,235 – $1,385 and $5.95 – $6.75, respectively.
Overall, NRG ranks 5th on our list of the best performing utilities stocks so far in 2025. While we acknowledge the potential of NRG as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than NRG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
