SSIM: Powering the AI economy

December 3, 2025

The US utilities sector is set for its biggest growth in decades, powered by rapid AI adoption and electrification. Explosive data center demand is driving earnings, valuations, and capital deployment.

The US utilities sector is entering a transformative phase, fueled by structural demand shifts from electrification and the rapid adoption of AI. US power demand is set to accelerate meaningfully in the years ahead.

A key driver of this shift is the explosive rise of data centers—powered by AI workloads and hyperscaler capital spending-which are emerging as a major growth engine. Their share of total electricity consumption could nearly triple by 2028, rising from 4.4% in 2023 to an estimated 6.7%–12%.

Meeting this surge may require over 50 GW of incremental capacity by 2028. This unprecedented demand acceleration positions utilities for a significant growth opportunity, with far-reaching implications for earnings, valuations, and capital deployment strategies.

After ending 2023 as the weakest S&P 500 sector with a 15% decline in earnings, utilities staged a sharp rebound in 2024, delivering a 23.4% return driven by robust earnings growth of 24.7%. The sector has maintained strong momentum into 2025, posting year-to-date gains of 20.25% and outperforming the broader index by 493bps.

Q3 2025 results were particularly strong: Utilities reported the third-highest year-over-year earnings growth among all eleven sectors at 23.1%, with 74% of companies beating estimates.

At the industry level, all five subsectors posted positive earnings growth: Independent Power and Renewable Electricity Producers (+32%), Gas Utilities (+29%), Electric Utilities (+25%), Multi-Utilities (+17%), and Water Utilities (+8%).

The sector’s low beta and defensive characteristics have proven attractive amid heightened volatility and macro uncertainty, while expectations of rate cuts have further supported the rally.

At the start of 2024, utilities traded at a forward P/E of 15.8, about a 19% discount to the S&P 500, but as investors recognized growth potential tied to AI-driven energy demand, valuations climbed, with current forward P/E ratios near 18.5x-above the historical 15x average yet still below the market’s 21.7x.

This multiple expansion reflects optimism around the AI CapEx boom, though earnings have lagged due to the sector’s typical delay between capital deployment and revenue realization.

This optimism is underpinned by hyperscaler-driven demand, which has set the stage for an unprecedented investment cycle: utilities plan $208 billion in grid upgrades for 2025 and more than $1 trillion through 2029, aimed at expanding generation, transmission, and storage capacity to meet surging power needs.

Historically, lower yields have supported the utility sector by reducing capital-raising costs. With rate-cut expectations gaining traction, falling yields further enhance the sector’s defensive appeal.

Utilities currently offer a dividend yield of 2.68%, alongside consensus EPS growth estimates of 7.2%, 9.1%, and 9.2% for CY25-277. This positions utilities as a rare combination of income stability and secular growth.

Structural tailwinds from AI adoption and electrification are transforming the sector from a traditional yield play into a growth-plus-income opportunity. While valuations have partially priced in the AI-driven demand story, earnings acceleration is expected to unfold over the next several years, creating potential for durable upside.

Despite regulatory and execution risks, the long-term outlook suggests utilities could deliver superior risk-adjusted returns-making them a compelling choice for investors seeking defensiveness with upside.