Artificial intelligence (AI) stocks have soared in the past few years, and growing AI development has some investors wary of the massive capital expenditures that hyperscalers are planning. For investors looking for exposure to AI growth outside of major tech companies, utility providers such as Constellation Energy (NASDAQ: CEG) offer a positive potential that will benefit from this building. See how.
Hyperscalers are spending big money to expand their data center footprints. These data centers, designed specifically for artificial intelligence, consume much more energy than traditional data centers. These data centers use graphics processing units, which generate a large amount of heat — and require cooling — and consume more electricity than the central processing units of previous data centers.
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Constellation Energy is the largest producer of carbon-free electricity, the kind of energy hyperscalers want most. The company capitalized on robust demand for power and secured 20-year power purchase agreements (PPAs) with Microsoft and Meta Platformsthe parent company of Facebook. What makes Constellation a popular choice for hyperscalers is its huge nuclear footprint and nuclear’s ability to provide both reliable and sustainable power.
The company made a big 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 will enable Constellation to provide dispatchable power, ensuring the reliability of the power grid for both homes and businesses.
Constellation Energy’s stock hit $412 a share in October but has recently sold off 30% amid high growth expectations and a changing political landscape. On January 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 could tie up Constellation’s lead from the auctions for the 2028-2029 and 2029-2030 delivery years, the company 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) for each 33-4 years approved by the Federal Energy Commission for every 33-4 years. Not only that, but the deals with Microsoft and Meta Platforms lock in long-term agreements that provide stability and visibility into future revenue.