We recently compiled a list of the 12 Best Utility Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where NRG Energy, Inc. (NYSE:NRG) stands against the other utility stocks.
The rapid growth of artificial intelligence (AI) is putting an unprecedented strain on the power grid. One of the primary concerns is the unpredictable nature of AI demand. Unlike traditional industries, AI companies are experiencing exponential growth, making it difficult for utilities to forecast and plan for energy demand. This uncertainty is further complicated as the regulatory framework governing utilities is also a significant obstacle to addressing the energy crisis. Utilities are required to petition regulators for approval to invest in new infrastructure, which can be a time-consuming and uncertain process. This has led to a situation where utilities are unable to invest in the infrastructure needed to support the growth of AI, exacerbating the energy crisis.
Read Also: 15 Energy Infrastructure Stocks That Are Skyrocketing and 12 Best Middle East and Africa Stocks To Buy Right Now.
In an interview with CNBC on December 6, Nicholas Campanella, Senior Equity Research Analyst at Barclays, discussed the growing demand for power to support the increasing needs of data centers and the tech industry. Campanella forecasts that the US would face a shortage of resources to meet this demand, making nuclear power an attractive option. Campanella cited the fact that gas turbines are largely sold out between now and 2029, and limited ability to bring on new renewables between now and 2026-2027. Campanella emphasized that the growing demand for power from data centers and hyperscalers would drive up demand for nuclear energy.
Given the recent surge in their price, Campanella highlighted that investors should still buy stocks in utility and independent power-producing companies involved in nuclear power, citing the growing mismatch between supply and demand for power in the late decade. According to Campanella, utility companies that have nuclear assets are well-positioned to capitalize on this trend, particularly those with early site permits or Combined Operating Licenses. Campanella pointed out that the last nuclear renaissance had left several sites with existing permits, which could be leveraged to expedite the development of new nuclear facilities. He forecasts that additional large-scale and Small Modular Reactor (SMR) commitments will be made in 2025.
The growing energy demands driven by the rapid expansion of artificial intelligence and data centers present opportunities for investors, particularly in utility companies. With that in context, let’s take a look at the 12 best utility stocks to buy according to hedge funds.
Our Methodology
For this article, we used the Finviz and Yahoo stock screeners to find the 40 largest utility companies. We then used Insider Monkey’s Hedge Fund database to rank 10 stocks according to the largest number of hedge fund holders, as of Q3 2024. The list is sorted in ascending order of hedge fund sentiment.
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).
Close up image of an engineer inspecting the control panel of a modern power plant.
NRG Energy, Inc. (NYSE:NRG)
Number of Hedge Fund Holders: 49
NRG Energy, Inc. (NYSE:NRG) based in Houston, Texas, is an integrated power company that provides electricity generation and retail energy services. The company operates a diverse energy portfolio, including natural gas, coal, nuclear, solar, and wind assets. NRG Energy, Inc. (NYSE:NRG) operates in the retail energy sector through brands such as Reliant Energy and Direct Energy.
NRG Energy, Inc. (NYSE:NRG) is actively expanding its Virtual Power Plant (VPP) initiatives. The company has announced a strategic partnership with Renew Home and Google Cloud to develop a 1 gigawatt residential VPP in Texas. The VPP will be offering a Home Essentials bundle that includes a Vivint Smart Thermostat, doorbell camera, and professional installation at no cost to customers enrolled in a VPP plan. This initiative aims to enhance customer engagement and retention as well as provide NRG Energy, Inc. (NYSE:NRG) with a flexible and cost-effective asset to manage supply during periods of volatility. The VPP is expected to generate a significant recurring margin, with projections of $110 million annually for a 650-megawatt VPP and over $160 million for a 1-gigawatt VPP, making it a highly profitable and resilient asset.
NRG Energy, Inc. (NYSE:NRG) is also expanding its commercial and industrial (C&I) energy services footprint by incorporating AI into both sales and customer care. This approach aims to increase speed, improve service quality, and reduce costs, making the company’s offerings more attractive to C&I clients. NRG Energy, Inc. (NYSE:NRG) is expanding its product portfolio to include advanced solutions such as load management and reduced carbon options, catering to the growing demand for sustainable energy solutions.
Overall NRG ranks 4th on our list of the best utility stocks to buy according to hedge funds. While we acknowledge the potential of NRG as an investment, 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 NRG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
