Tackling the Utilities Valuation Debate: Hard to See Further Outperformance

Research evidence excerpt

Tackling the Utilities Valuation Debate: Hard to See Further Outperformance

Power & Utilities

Equity Research

June 12, 2026

What Is Driving The Utility Sector?

See numerous risks and/or trends emerging that collectively create headwinds broadly for the

Utility sector relative performance through year-end: 1) Slowing pace of upward estimate revisions;

2) Rising interest rates; 3) Higher demand for high beta, AI levered names relative to lower risk utilities

[until lately...]; 4) Nuclear and large-cap related risks.

Utilities remain defensive offering investors a safe-haven from broader market volatility driven by

unforeseen geopolitical distabilizing events, macro-economic weakness, and/or broader tech-related

correction; all of which would deem utilities attractive. Defensive characteristics combined offensive

qualities tied to data center exposure and related power generation investments are primarily

driving superior industry growth that can be the recipe for success in the current environment.

A drawback of late is that utilities have been unfavorably correlated with hyperscaler capex, so there has

been erosion in the defensive profile.

Data centers remain the focus with increasing scrutiny by investors on milestones for visibility

into future generation investments; this addressed through signed ESAs. As are load forecasts

assumptions based on minimum take-or-pay commitments. Affordability also back in the forefront

as primaries and mid-term elections have investors risk positioning. Data center opposition (on the

local level) is growing louder, but one utility's misfortune becomes another’s gain as development

and expansion increasingly likely in already accommodating states and service territories; clustering