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 Talen Energy Corporation (NASDAQ:TLN) stands against other best performing utilities stocks so far in 2025.
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).
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Talen Energy Corporation (NASDAQ:TLN)
% Gain on a YTD Basis: 17%
Number of Hedge Fund Holders: 77
Talen Energy Corporation (NASDAQ:TLN) is an independent power producer and infrastructure company, that produces and sells electricity, capacity, and ancillary services into wholesale power markets. BofA initiated coverage of the company’s stock, providing a “Buy” rating and a price target of $253. The firm is optimistic about the lucrative AWS data center contract for the Susquehanna nuclear plant, newly proposed RMR rates, and the anticipations of increased power prices.
Elsewhere, JPMorgan analyst Jeremy Tonet upped the price target for Talen Energy Corporation (NASDAQ:TLN)’s stock to $295 from $288, maintaining an “Overweight” rating. The analyst highlighted the RMR settlement for the Brandon Shores and H.A. Wagner plants, allowing the company to operate until May 31, 2029. The settlement will provide fixed payments to Talen Energy Corporation (NASDAQ:TLN) at $312/MW-day ($145 million annually) and $137/MW-day ($35 million annually) to operate Brandon Shores and H.A. Wagner, respectively.
ClearBridge Investments, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“We added several new positions during the quarter and updated our utilities and energy exposure. In utilities, we bought Talen Energy Corporation (NASDAQ:TLN), an independent power producer which sells electricity, capacity, and ancillary services into wholesale power markets, which we funded by exiting our position in Constellation Energy. Although both companies are merchant power producers that stand to benefit from higher power prices as AI data centers are brought online, we believe that Talen’s stock price has milder embedded expectations than does the more optimistic Constellation. As a result, we believe that Talen represents a much more attractive risk/reward tradeoff that still capitalizes on the strong, long-term trend toward higher power prices.”
Overall, TLN ranks 8th on our list of best performing utilities stocks so far in 2025. While we acknowledge the potential of TLN 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 TLN 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.
