Artificial intelligence (AI) stocks have surged over the past couple of years, and the growing AI build-out has some investors wary about the massive capital expenditures hyperscalers are planning. For investors seeking exposure to AI's growth outside of major technology companies, utility providers like Constellation Energy (CEG +0.29%) offer upside potential that will benefit from this build-out. Here's how.
NASDAQ: CEG
Key Data Points
Constellation Energy has scored some big deals with hyperscalers
Hyperscalers are spending big bucks to expand their data center footprints. These data centers, designed specifically for artificial intelligence, consume significantly more energy than traditional data centers. These data centers use graphics processing units, which generate a massive amount of heat -- and require cooling -- and consume more electricity than the central processing units of previous data centers.
Constellation Energy is the largest producer of carbon-free electricity, the kind of energy hyperscalers want most. The company has capitalized on robust energy demand and secured 20-year power purchase agreements (PPAs) with Microsoft and Meta Platforms, the parent company of Facebook. What makes Constellation a popular choice for hyperscalers is its huge nuclear footprint and the ability of nuclear to provide both reliable and sustainable energy.
The company made a huge splash with its recent $26.6 billion acquisition of Calpine Corp., which closed in January. The move gives it 55 gigawatts (GW) of capacity, including 27 GW of natural gas and geothermal capacity. The new combined assets enable Constellation to provide dispatchable power, ensuring power grid reliability for households and businesses alike.
Image source: Getty Images.
What to watch
Constellation Energy's stock reached $412 per share in October but has recently sold off 30% amid lofty growth expectations and a changing political landscape. On Jan. 16, Reuters reported that 13 state governors were set to sign an agreement with the Trump administration to curb rising electricity costs, which reportedly included price caps for two years on future auctions in the PJM grid.
While the move may cap Constellation's upside from auctions for the 2028-2029 and 2029-2030 delivery years, the company has successfully cleared all of its PJM capacity in the most recent 2027–2028 auction, which will generate revenue at the clearing price (at the Federal Energy Regulatory Commission-approved cap of $333.44 per megawatt-day) for that year. Not only that, but deals with Microsoft and Meta Platforms lock in long-term agreements that provide stability and visibility into future revenue.
With its massive footprint of clean-energy assets, Constellation Energy is one utility stock well positioned to power the AI data center boom over the next several years.
