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 The AES Corporation (NYSE:AES) 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.
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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).
An executive in a power plant control booth overseeing the efficient energy production.
The AES Corporation (NYSE:AES)
Number of Hedge Fund Holders: 47
The AES Corporation (NYSE:AES) based in Virginia, is a global power company that generates, transmits, and distributes electricity across 15 countries in North America, Asia, Europe, South America, Central America, and the Caribbean. The company generates electricity using natural gas, coal, solar, and wind. The AES Corporation (NYSE:AES) portfolio consists of over 31 gigawatts of generation.
The AES Corporation (NYSE:AES) has been at the forefront of the renewable energy transition, with a significant focus on developing and commissioning large-scale renewable projects. This growth is driven by a strong pipeline of projects including a 1.5 gigawatt wind project in Texas. The company has strong relationships with corporate customers, particularly in the technology and mining sectors, driven by its ability to offer customized solutions and deliver projects on time and on budget. The AES Corporation’s (NYSE:AES) strategic partnerships, such as the one with CDPQ, a global investment group, have been pivotal in securing funding and expertise for these projects. The company recently extended its partnership with CDPQ, to support the growth plans of AES Ohio.
AES Ohio also plans to invest more than $1.5 billion from 2024 through 2027 to enhance system reliability and modernize its grid. This investment includes extensive upgrades to transmission infrastructure and the deployment of smart grid technology. Furthermore, the company recently reached a settlement agreement for Phase 2 of its Smart Grid program, which, if approved by the Public Utilities Commission of Ohio (PUCO), will enable investments of over $240 million over a four-year period focusing on modernizing the grid infrastructure through advanced technologies such as automation and improved communication capabilities.
Overall AES ranks 6th on our list of the best utility stocks to buy according to hedge funds. While we acknowledge the potential of AES 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 AES 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.
