Bank of America has identified five top utility and energy stocks poised to benefit from the explosive growth of AI-driven data centers, signaling a major shift in the power sector’s growth trajectory. The investment bank’s analysts predict that AI infrastructure demands will be the primary driver of long-term growth for energy and utilities companies as data centers proliferate across key U.S. regions.
BofA’s bullish outlook centers on strong regional growth in Texas and the Southwest, with data centers clustering in strategic hubs including California, northern Virginia, Illinois/Wisconsin, and Texas, while expanding into adjacent markets like Arizona, Nevada, Indiana, Iowa, Louisiana, Ohio, Pennsylvania, and North Carolina. This geographic expansion reflects the massive power requirements of AI computing infrastructure.
The bank’s top pick is Public Service Enterprise Group (PEG), an energy holding company focused on electricity and natural gas distribution. Despite being down 6% year-to-date, BofA maintains a $95 price target and “Buy” rating, describing it as offering the “best of both worlds” - the stability of regulated utility operations combined with owned power generation assets that position it to benefit from rising electricity prices.
Alliant Energy (LNT), up 10% in 2025, ranks as BofA’s second choice with a $74 price target. The Wisconsin-based natural gas and electricity producer serves the Midwest and is positioned to capitalize on the region’s growing data center presence. Sempra (SRE), serving California and Texas markets, receives a $99 price target despite being down 1% year-to-date, with analysts citing California’s stable data center market and Texas’s growth potential.
Southwest Gas (SWX) has rallied 14% in 2025 and carries an $84 price target, with BofA highlighting its strategic positioning in California, Arizona, and Nevada as key advantages in the data center era. Finally, Xcel Energy (XEL), also up 10%, receives an $84 price target based on its projected 6-8% growth through the decade, supported by a robust data center pipeline including 1GW under construction, 2GW in high-probability development, and over 20GW in additional pipeline projects.
Key Quotes
Our bullish view on power is supported by strong regional growth led by Texas and the Southwest, with data centers clustering in key hubs (CA, northern VA, IL/WI, TX) and expanding into adjacent geographies (AZ & NV, IN & IA, Broader TX & LA, and OH, PA, and NC).
Bank of America analysts outlined their geographic thesis for AI-driven energy growth, identifying specific regions where data center expansion will drive utility sector performance over the long term.
[It] has projected 6-8%+ growth through the end of the decade with upside from data center development on a rational backlog of 1GW under construction, 2GWs in the high probability pipeline, and greater than 20GWs in the additional pipeline
BofA analysts describing Xcel Energy’s growth prospects, highlighting the massive scale of data center power requirements with over 23GW in various stages of development - enough to power millions of homes.
Less relative management tenure for both CEO and CFO, but execution risk is relatively lower despite this, given the repeatable core nature of capital projects in the plan (gas pipelines), and lower relative capex as a percent of market cap and capex per employee
Analysts assessing Southwest Gas’s risk profile, noting that despite newer leadership, the company’s infrastructure projects are straightforward and lower-risk, making it well-positioned to serve growing AI data center demands.
Our Take
This investment thesis represents a fundamental recognition that AI’s infrastructure requirements extend far beyond semiconductors and cloud computing - the power grid itself must evolve to support the technology. What’s particularly noteworthy is BofA’s focus on regulated utilities, suggesting that AI’s energy demands are so substantial and predictable that even conservative, slow-growth utility companies will see meaningful acceleration. The geographic analysis reveals that data center location decisions are increasingly constrained by power availability rather than traditional factors like labor costs or tax incentives. This could reshape regional economic development patterns for decades. The multi-gigawatt pipelines mentioned, particularly Xcel’s 20+ GW in development, illustrate the staggering scale of AI’s energy appetite - equivalent to adding multiple large cities’ worth of power demand. Investors seeking AI exposure with lower volatility may find these utility plays attractive, though the environmental implications of this power surge remain a critical concern for the industry’s long-term sustainability.
Why This Matters
This analysis underscores a critical infrastructure challenge facing the AI revolution: the massive power requirements needed to sustain exponential growth in artificial intelligence computing. As AI models become more sophisticated and widespread, data centers housing these systems are consuming unprecedented amounts of electricity, fundamentally reshaping the energy sector’s growth outlook.
The geographic clustering of data centers identified by BofA reveals strategic patterns in AI infrastructure development, with companies choosing locations based on power availability, climate considerations, and proximity to fiber networks. This trend has significant implications for regional economic development, as areas with robust power infrastructure become magnets for high-tech investment.
For investors, this represents a tangible way to gain exposure to AI growth beyond volatile tech stocks, offering the stability of regulated utilities combined with AI-driven upside. For society, it highlights the environmental and infrastructure challenges of AI adoption, as utilities must rapidly expand capacity while managing sustainability concerns. The projected decades-long growth trajectory suggests AI’s power demands will be a defining feature of energy markets for years to come.
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Source: https://www.businessinsider.com/top-stock-picks-utilities-data-centers-peg-xel-swx-bofa-2025-12